The Roundtable: MBA 600 Multimedia Applications in Business, Fall 2006

Welcome to the MBA 600 Roundtable, where everyone gets a turn to speak and respond.

The purpose is for you to think critically and express yourself cogently. If you do that, I don't mind whether the Roundtable stays on topic or takes its own direction.

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The Bullwhip Effect

You run a great company. From the raw materials you take in, through the production process, and out the door into the distribution channel, everything works perfectly. You carry no excess inventory, which keeps your costs as low as they can get, which keeps your prices down, which keeps you competitive.

Your marketing manager, who labored his whole career to get this supply chain perfectly tuned, finally retires. You hire a new marketing manager, who is young and ready to go. She increases sales by 50%.

What should you do?

For starters, fire the new marketing manager. Or at least send her to MBA school where she can learn the error of her ways. She has really screwed up, increasing sales by 50%.

Then you should cancel all the year's raises and bonuses (decrease costs). You should probably raise prices (increase revenue) because you're going to need the cash to survive this crisis.

Why has the marketing manager screwed up?

The bullwhip effect.

To help you understand, we're going do a short simulation. To make it more interesting, we're going to make it a game and see who gets the best score.

The simulation, called the Near Beer Game, will take the situation above and give you a year (50 tries) to overcome the crisis. All you do is change one number, the amount of raw material you order.

The winner will be person who, in the fewest number of weeks, tames the bullwhip, that is, matches finished goods inventory to total customer orders to balance the supply chain.

Here's how the Near Beer Game works: at the beginning of the simulation your supply chain is in perfect equilibrium. Customers are ordering ten cases of beer each week, you have ten cases in inventory, ten cases are brewing, and ten cases worth of raw materials are arriving from your vendors. In week two, demand increases to fifteen cases per week and remains at fifteen cases for the remainder of the simulation. The game ends when you manage to get your supply chain back in equilibrium for fifteen cases of beer.

You will find it difficult to be able to tame the bullwhip in this artificial situation of almost perfect information.

Think about how difficult it will be in the real world, which is very messy, crammed with imperfect unreliable always changing information. And where your paycheck depends on your ability to synchronize a supply chain.

Learn more:

VertiSync - Fastest Way To A Globally Synchronized Supply Chain

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You're going to need to play a couple of games before you start to develop a strategy. Change the number in the lower left corner and click submit. Watch the other numbers change as a result.

Novice Mode: Customers will patiently wait until you have enough beer to meet their demand.

Expert Mode: Customers will get frustrated and leave if you don't have enough beer to meet their demand.

If you try the expert mode, you'll soon be out of business and everyone's paycheck will be gone.

Note the graphs link, which will record and display the effects of your decisions. During your first few games, if you give it twenty or thirty weeks (orders) and then look at the graphs, you'll see a clear bullwhip pattern to your graphs. As you get better at the game, you'll learn to tame the bullwhip.

When you have your best looking graphs, that is, the graphs that indicate the fastest way to tame the bullwhip, please save the graphs page, zip it, and FTP the zip file to your web folder.

Then go to the Bistro Roundtable topic titled The Bullwhip Effect and discuss your strategy. What did it take to tame the bullwhip?

What worked? Why?

What didn't work? Why?

In your message, make a link to your zip file, so we can investigate further. Display a screenshot if you are proud of your taming success, especially if you are in the top three.

Government Stats

The US Economic Census takes a snapshot every five years: 1997 and 2002, most recently. Comparing these two snapshots reveals growth in the two sectors relevant to our case study -- 51222 Integrated Record Production/Distribution and 71113 Musical Groups and Artists. The record labels would note that these two snapshots conceal a peak, that between 1997 and 2002 came a high point. In 1997, they argue, they were on the way up. Then Napster ambushed them and in 2002, they're on the way down.

As is true for much such data, all the data points are precise but the overall picture as I paint it at the Port 80 Boardwalk Pop Music web is a little fuzzy. I'm especially perplexed about the absence of specific royalty information in the 1997 census and its inclusion in the 2002 census.

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Recognizing that each of you is starting off in your own direction, I want to open the data to as many interpretations and observations as possible. Thus, I'm reluctant to give you my usual specific questions to answer. Instead, I'd like to open it up widely to a response from each of you. Look over the data and find something interesting to respond to at the Bistro's Government Stats topic. If nothing else, comment on someone else's response.

Business Models

Imagine...
Suppose...
Predict...
If..., then...
How might...
Can you create...
What are some possible consequences...

Several of you have expressed great and understandable anxiety about being creative, that is, coming up with a business model to compete in the pop music industry. To help give you ideas, I have a lot of stuff for you to read. What I hope will be the best of the lot is "Changing Business Models: Surveying the Landscape" by Jane Linder and Susan Cantrell. The next best, or at least the most provocative, may be this article about an interesting implication of the Internet.

Forget squeezing millions from a few megahits at the top of the charts. The future of entertainment is in the millions of niche markets at the shallow end of the bitstream.

Long Tail Marketing is a technique to increase sales while decreasing the cost per sale by developing and selling to thousands of niche markets. It has implications within search engine marketing, online selling and advertising purchases.

The future of music is unknown. But whatever it is, it will be swayed, as usual, by technology. Carver Mead, a computer-chip pioneer, advises us to ''listen to the technology'' to see where it is headed. If we listen to the technology of music, we might hear these possibilities ...

Help, I'm not creative!

That's nonsense, of course, but it does raise the important question of where to get ideas for a business. Some trails to follow.

Provide services and digital products for the devices introduced at CES earlier this month in Las Vegas. For example, what's so special about a radio receiver/MP3 player? If someone buys one, what can they do that they couldn't do before? Provide that to them. Now, whom else can you provide it to? How big is that market?

The whole photo slide show will give you a quick glance at new products and trends in computers, audio, video, home networking and wireless, mobile electronics, and emerging technology. When you see something that intrigues you, copy and paste the descriptive phrase into Google and learn more. Here are the Google results for radio receiver/MP3 player.

Another trail is to adapt something that works in one market to another market where it has not been tried successfully. Take it to another country or subculture. Take it to another age / gender demographic. In other words, don't compete for a market share; instead, enter a new market.

Companies that blaze trails take a lot of bumps and bruises for the benefit of those who follow. Look at a business model that is working just fine -- and make it better, so much better that it is different and attractive to customers in its own right.

ready for more?

With venture capital stirring again, the Mayfield Fund's Allen Morgan says the best place to find the next big thing is in the dust of the bust.

The half-dozen partners around the conference room table at the Seal Cove Inn in Moss Beach, about 20 miles south of San Francisco, had been briefing one another on their portfolios and new projects.

Partners would henceforth spend at least half their time looking for new opportunities.

perhaps some of the ideas from the Internet boom might simply have been a few years ahead of their time

He set about systematically distilling the lessons of the recent past and applying those lessons to his evaluation of each startup that he considered funding.

While many chalk up the dotcom extinction to the catastrophic impact of a single asteroid called economic rationality, Morgan holds that it was actually a series of fundamental factors - broadband access, consumer buy-in, search technology, and Web advertising. Five years ago, he says, they were the Four Horsemen of the Apocalypse. Today, he says, they should be known as the Fantastic Four.

a new boom is on: Startups are sprouting everywhere, venture capital firms are collecting tons of cash, and major companies are gobbling up smaller outfits. In the first three quarters of 2005, VC firms raised $17.3 billion - more than they raised in any full year since 2002.

Thanks to the open source movement, cheap hardware, and offshore software development, it takes a lot less money to start a company in 2006 than it did in 1996.

while most VCs and investors are focusing on the new boom, tomorrow's Internet titans will begin as VC-backed startups that dare to dream big, not as bands of angel-funded programmers happy to sell out for peanuts.

But despite the seemingly frantic pace of Morgan's days - reviewing dozens of business plans, recruiting management teams for his startups, and working the BlackBerry in between - the business of venture capital turns out to be incredibly slow-moving. This year, Morgan will examine 50 to 100 business plans and sign term sheets on one to three.

It still takes four to six years for an industry-changing startup to become profitable.

Content and Control: Assessing the Impact of Policy Choices on Potential Online Business Models in the Music and Film Industries

The online environment and new digital technologies threaten the viability of the music and film industries' traditional business models. The industries have responded by seeking government intervention, among other means, to protect their traditional models as well as by developing new models specifically adapted to the online market. Industry activity and public debate have focused on three key policy areas related to copyright holders' control of content: technical interference with and potential liability of P2P services; copyright infringers' civil and criminal liability; and legal reinforcement of digital rights management technologies (DRM).

This paper seeks to support policymakers' decision making by delineating the potential consequences of policy actions in these areas. To do so, it assesses how such action would impact relevant social values and four business models representative of current and emerging attempts to generate viable revenues from digital media. The authors caution that government intervention is currently premature because it is unlikely to strike an appropriate balance between achieving industry goals while supporting other social values, such as consumer rights, the diversity of available content, and technological innovation.

New media don't succeed because they're like the old media, only better: they succeed because they're worse than the old media at the stuff the old media is good at, and better at the stuff the old media are bad at. Books are good at being paperwhite, high-resolution, low-infrastructure, cheap and disposable. Ebooks are good at being everywhere in the world at the same time for free in a form that is so malleable that you can just pastebomb it into your IM session or turn it into a page-a-day mailing list.

P2P threatens artists' ability to sell their music through digital downloading because the digital files available from sellers are virtually indistinguishable from those available on the file-sharing services. Economists refer to these types of goods as perfect substitutes, reflecting the fact that one digital file (the copy made available by the seller on the Internet) is a nearly perfect replacement for the other (the copy made available by the file sharer). It is a basic tenet of economic theory that, when choosing between two such goods, consumers will choose the one that costs less.

In the future, if most music consumers choose between for-sale downloads and those available through file-sharing services, it is difficult to argue that many will choose to pay for their digital copy. Surprisingly, file-sharing proponents often claim that the music industry has to "change its business model" to adapt to the new P2P environment. When the new environment forces a business to compete with perfect-substitute goods that are being given away, the best way to adapt is probably to exit the industry.

Exit the industry? Just close up shop and walk away? Sell their assets (copyrights)?

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"Exit the industry." What would happen if the four large multinational conglomerates accounting for 90% of recorded music sales exited the industry?

Would another large transnational conglomerate rush in to fill the void?

Would MTV disappear, too?

Where would the distributors and retailers get atoms to sell?

Would you as a consumer have access to more music or to less music?

Would you see opportunities for reintermediation in one of the areas of services that the major labels have previously bundled (vertically integrated)? For example, would people still pay for someone to scout out the newest of a certain sub-sub genre? Would ambitious musicians and clever producers still need a place to meet and work?

The Future of Music, Inc.

The current pop music distribution and marketing industry is too large an elephant for little folks like us to figure out in two months, but we're going to do the best we can.

In theory, as a group, we are smarter than the sum of the parts. So as a group, we will try to discover where Big Media, or at least Big Music, is most vulnerable and what we can do to enter the market by exploiting that vulnerability. Each of you is developing a business model that grabs a different part of the elephant, to extend the metaphor. We still don't have it all -- there are many, many sectors of this industry that none of us is approaching. But we still have more collectively than any of us has individually.

You can do your part now by analyzing the industry from the point of view of your business. These analyses will become part of your business plan. The purpose of the Roundtable is to have all of them in one place so that you can more easily compare and use your colleagues' ideas as though they were your own.

Think of these roundtables as rough drafts of your final business plan. Remember how thorough and frank Warner music was in their IPO prospectus; that's a good model for you to follow. Here's a recent update on Warner's fortunes:

The IPO didn't meet expectations. The "boys" listed in the back pages of the IPO prospectus got $73 million, but that's not much compared to what they had in mind.

Shares this morning were selling for $18.50, just a tad above the $17 they sold for in the IPO, which was down from the $24 they had in mind when they announced the IPO and way down from the price they thought it would rise to. They still got rich, mind you, but not disgustingly filthy rich.

It's important to keep in mind that this loss includes a load of one-time charges related to Warner Music Group's initial public offering (such as a $73 million termination fee for a management contract and IPO bonuses).

Warner's working on an Internet-only music label that may help it make beautiful music out of its costly cacophony.

The discussion in the above article about Warner's new e-label puts in paragraph form the kinds of things I'm asking for in bullet-point form in the roundtables below.

PEST Analysis

What is the current state of the industry and what larger forces brought it about?

The big picture. A PEST or STEP analysis identifies and assesses the real-world drivers of change, roughly grouped into politics, economics, society, and technology. They correspond to the timeless constraints of laws, markets, norms, and architecture. Four other approaches to the same thing:

Managing Change's STEP - Social, Technological, Economic and Political Assessment

stakeholder	Porter's Forces	political / legal	economic markets	sociocultural norms	technology / architecture
makes CDs	competitor	wants long inclusive enforced copyrights	wants to keep barriers to entry high	wants to call file sharing "theft" and "stealing"	wants strong digital rights management

You should be able to complete a row of this table for any stakeholder role, that is, those in the supply chain that we examined during the first two weeks of the course.

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A big problem with doing a PEST analysis is lack of focus. The person doing it lacks a point of view and an audience to help them decide what of the thousands of environmental factors are salient.

For this Roundtable topic, I would like you to pick the point of view of your still-developing business model. Make your audience an investor in the company (or division of a larger company) that you would be creating. For example, if you do the PEST analysis from the point of view of a new-entrant music label, your audience would be someone who had invested or might invest in the company.

At the Bistro's MBA 600 Roundtable PEST Analysis topic, make a bullet-point list of what in the larger world affects your part of the pop music world from your point of view as a new entrant. What's the big picture here? What's affecting your chances as a start-up? Try to get at least four or five items in each PEST category.

The table above is only suggestion of where to go; you may see it differently. Vague generalized statements like "lots of downloading" or buzzwords like "KaZaA" only get you started. What statistics, facts, and trends indicate the factors influencing your stake in the distribution of pop music? Quotes from experts and authorities?

I recommend that you compose your reply off-line and save it before you copy-and-paste it into the Bistro reply box.

SWOT analysis

Analyze the strengths, weaknesses, opportunities, and threats of your situation as a start-up. Often, the strengths and weaknesses are internal and the opportunities and threats external, but they don't have to be.

The logic behind the SWOT analysis is that by looking at your situation, you can see a set of strengths or core competencies that you need to maintain. By identifying liabilities (weak points that need change), you can address them and move them into strengths. The same applies to opportunities, aka customers and partners, suppliers and friends, in the sense that by identifying threats (competitors and substitutes) you can work to reduce them as far as possible. Thus you can begin to identify how you might gain advantage over the incumbents.

If better, faster, and cheaper are important, it's often observed that you can get one or two of those, but only at the expense of the others. And you'll never get all three. That may have been true in the world of atoms. What about in the world of bits? Doesn't KaZaA make Tower Records appear worse (less inventory), slower, and more expensive? KaZaA has millions of tunes available right away for free.

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At the Bistro's MBA 600 Roundtable SWOT Analysis topic, analyze your position as a new entrant in the current pop music distribution and marketing system. It might help if you clarify your position first, so that everyone knows where you're coming from.

Don't analyze the industry here, analyze your position. What are the strengths and weaknesses of your stake? What are the opportunities and threats for you to continue as you are? For you to change?

Vague generalized statements like "lots of downloading" or buzzwords like "KaZaA" only get you started. What statistics, facts, and trends indicate the factors influencing your stake in the distribution of pop music? Quotes from experts and authorities?

I recommend that you compose your reply off-line and save it before you copy-and-paste it into the Bistro reply box.

Force-Field analysis

Looking into the future, what are the industry's driving and restraining forces and their relative strengths?

What internal and external forces are pushing for change, aka the driving forces? What internal and external forces are pushing against change, aka the restraining forces?

The current situation can be moved in either direction by changes in the relationship between the driving and the restraining forces.

If your company is going to succeed, going to compete in this industry, it will be part of those changes, either strengthening a driving force or weakening a restraining force.

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At the Bistro's MBA 600 Roundtable Force-Field Analysis topic, make two lists. Between them is your company (your products and services, your marketing reps, your decision makers) somewhere in the current pop music production, distribution, and marketing system. From the point of view of your stake in the system, list the driving and restraining forces. Up to half a dozen on each side would be good. Are they valid? Can they be changed?

Here's the key: rank order the forces in the lists on each side. That will show points of greater and lesser vulnerability.

I recommend that you compose your reply off-line and save it before you copy-and-paste it into the Bistro reply box.

Mid-Course Review

I decided to not do this mid-course review and wait a couple of weeks until MBA 600 is over.

Not that I want to rush you, but we're starting the second half of this course.

You've probably learned more than you realize because much of this learning takes time to sink in. Especially since you probably have adjust several mental models about how organizations and industries compete, it will take a period of time using the models to fully learn what you can do with your business plan.

This is a good time to reflect on what you've learned so far and its value to you.

At the Bistro's MBA 600 Roundtable Mid-Course Review topic, list the half-dozen most important or useful things you've learned so far in this course. Explain one in detail, the more detail the better, especially about your mental models. Many of you haven't had the time for more than very short Bistro messages. This one is your opportunity to write looooooong.

I recommend that you compose your reply off-line and save it before you copy-and-paste it into the Bistro reply box. Over the course of the next few weeks, add more messages to this discussion by responding to other students' messages. The greatest value of the Bistro is for you to speak to and listen to each other, not me.

competitors

NAICS / Porter

Putting your company in the center of Porter's model, list in groups the five forces at work on it: competitors, suppliers, buyers, new entrants, substitutes (likely source of disruption).

marketing analysis

demographic research

What research organizations (analysts, trade press, professional associations) follow your industry? ... which is probably where you got the answers to the first question about your customers.

Roundtable

MBA 600 Multimedia Applications in Business - Fall 2006

Spellcheck your Bistro messages!

The Bullwhip Effect

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Government Stats

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Business Models

Help, I'm not creative!

ready for more?

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The Future of Music, Inc.

PEST Analysis

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SWOT analysis

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Force-Field analysis

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Mid-Course Review

competitors

NAICS / Porter

marketing analysis

demographic research

MBA 600
Multimedia Applications in Business - Fall 2006