Coursera – Strategic Management

school

The course describes the history of Strategic Management and the theories that dominated business world at different time.  Some of the theories were overly simplistic, and some relied on detailed process too much.  The interesting point of the course is the same mistake that generations of managers make in their approach to strategy decisions – over reliance on their understanding of the external environment and the future.

The course also mentioned “emergent” strategy, which I encountered earlier in management literature – a strategy retaining flexibility and testing which markets and directions can emerge.  Though it is a specific approach, we will probably see many companies lacking strategy claim that this is exactly what they are trying to do. 🙂

The class included a very interesting case study:

In the 90s and early 00s, Novell, a software company once dominant in the networking space, saw its market share decline steadily, as its proprietary “Netware” software was replaced by freely available Internet based software.

But in 2003, Novell execs took bold action. They acquired Ximian and SuSe Linux, two companies that offered free alternatives to Micrsoft’s Office (Word, Excel, Powerpoint) and Windows, respectively.

buffledNovell intended to continue to give away the already free Ximian Desktop software, and the already free SuSe Linux alternative to Windows. They would make money, not by charging for the software, but by charging only for support of the software.Software companies had historically made 75% of their revenues from selling software, and only 25% from selling support for their software. In essence, Novell was deciding to give up the 75%, and seek only the 25%.

This might seem like a bad idea, but there was a careful calculation embedded in this strategy. Novell had not been able to sell very much of its own proprietary software for a long time, so it had, as their CEO, Jack Messman put it, “been living on that 25% piece for ten years.” The absence of that 75% of revenues from selling new software was already reflected in Novell’s stock price.

But Microsoft’s stock price still reflected handsome revenues from selling software. Novell could give away the Ximian and SuSe software without affecting it’s stock price, but if Microsoft tried to give away Office and Windows — or if they even significantly reduced their prices — sales would decline and the stock price would fall, or even collapse.

So, ironically, Novell’s historical decline in sales of new software made it able to do something Microsoft could not afford to do. Novell could give away software. Microsoft could not — not without angering its investors. Novell reasoned that companies would find free software more attractive than expensive software, and move over to Novell’s desktop from Microsoft’s.

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