Strategy Quiz and Case Study

Change is inevitable….except from vending machines.

A fool and his money are soon partying. –Steven Wright

Message

Dear Readers:

I know the three of you out there will be wondering about replies to your questions. This week requires traveling so please bear with me until I can reply properly.  Meanwhile, continue your work towards completing the Wal-Mart case study and Competition Demystified reading pages 1-110.

This quiz is meant to reinforce concepts you should be thinking about. Whenever you first look at an industry and/or company what should be one of the first questions that you ask______________________?

Research Question

Now, you have been asked to research a new company that has a product where the demand is estimated to increase 10 fold and you must advise your $2 billion hedge fund on Park Avenue, in New York whether to invest.  After two months of 18 hour days, you find out that the research on growth estimates was wrong!  The demand for the service will increase 1000x fold!  You are so excited you can barely wait to speak to the portfolio manager.  How great an investment will this be? What further MAJOR questions should you ask if demand will grow so rapidly. Take five minutes to frame your questions and what you will say to the big boss whom you will be meeting soon.

OK, scroll down and click on the cases below to learn what happened. Surprised?  Why or why not? Let me know your thoughts.

 

 

http://www.scribd.com/doc/77775204/Global-Crossing-A –sorry this had to be placed in the Value Vault under Global Crossing A (36 pages) due to security restrictions. If you do not have a key then email me at aldridge56@aol.com with VALUE VAULT in the subject line.

http://www.scribd.com/doc/77775347/Global-Crossing-CS-by-Univ-of-Edinburgh

For a different perspective and more context: http://www.scribd.com/doc/77780615/Bubbles-and-Gullibility-2008

4 responses to “Strategy Quiz and Case Study

  1. Some clear warning flags: company set up by a financier, with no knowledge of industry. I don’t know what margins in the cable business are, but I’ll wager right here and now that you can’t give over a 50% discount and still make a profit. The general flavour of their activities seems to be one of “deal-making” in a hot industry – which sounds very “promotional” than a genuine business operation.

    I suppose the major questions I would ask if there was to be a 1000X increase in demand:
    * 1000 times, for real?
    * what are the realistic chances that such demand can be satisfied, and by who?
    * how long will it take?
    * how much money will it take?

    Actually, the document’s referral to the emerging railroad industry seems particularly apt. Underpinning it is a real demand, with real businesses attempting to satisfy that demand. This attracts the inevitable gold rush, sham operators, and collapse.

  2. Stability of market share seem to be the most important question to understand an industry/company.

    In terms of growth: I would ask a question about pricing. How do expect pricing to evolve and why?

  3. Perhaps there’s some even more fundamental points:
    * extrapolating future trends based on past data is a dangerous exercise – it’s one of the “don’t do’s” of science. What something “has” done is not necessarily what something “will” do. It’s a cardinal mistake
    * how could you possibly know that the demand is 1000X the current level given that there is no supply anyway. It’s a bit like me saying “there’s a demand for 10,000 personal spaceflights per annum” – there’s no way that I could know that – it’s just a number I plucked out of the air.

    • Perhaps another way to view this is with the Chinese One Glove Theory. If we can garner 1% of the Chinese market because the market is SO BIG and growing SO MUCH, we will be rich. The problem being those are numbers pulled out of the air even if they seem conservative. Also what can YOU do that competitors can NOT do?

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