Professor: “What should the managers at Omnimax do to raise profitability?”
Student: “They should raise their prices.”
“Why would this raise their profitability?”
“Well, it would increase their margins.”
“Why would it increase their margins?”
“Well, profit margin is price minus cost; so if price goes up, profit margin goes up.”
“Really? What did you just say?”
“Profit margin is price minus cost…ah, I see, that assumes that cost stays the same.”
“Right, so what else happens if they increase their price?”
“They might sell less.”
“And what happens to cost if they sell less?”
“Mmh, cost might increase, since they can’t spread the fixed cost.”
“Ok, so profit margin might actually go down and they sell fewer units; is that a way to increase profits?”
“Ok, ok, so maybe they should lower prices!”
“Why would that increase profits? Wouldn’t that reduce their profit margin? You charge less.”
“But wouldn’t they sell more units, which could reduce cost? Isn’t that what we just argued?”
“How do you know they will sell more? Wouldn’t Omnimax’s competitor simply drop prices as well? And then they just have cut their margin without making any more sales. That doesn’t sound good. So maybe they should raise prices after all?”
“Ok, I give up!”
For the last 10 years, I have been teaching a second-year elective course on Competitive Strategy for MBA students at Wharton. The first challenge of teaching a class on strategy is that right or wrong answers rarely exist, as in, “the answer is 12.4.” This leads some students to assume that “anything goes” and that “every answer is equally good.” The second challenge is that many concepts in strategy are (on the surface) very easy. For instance, it doesn’t take long to teach someone the definition of “profit margin,” which equals price minus cost. As the introductory back-and-forth showed, however, applying these simple concepts in real situations might be much more subtle. My guess is a number of other courses face similar challenges.
My attempt to solve these challenges has been to do two things: make my course very interactive, despite having 60 students in the classroom, and to put students on the “hot” seat. Yes, there may not be right or wrong answers, but answers do differ in the degree to which they are defensible or thought-through. This more “Socratic” style can also fairly quickly reveal to students that all the “easy” concepts that they thought they had mastered, are perhaps not so easy after all. The question “Why?” can become a powerful tool in the classroom (and not just for five-year olds.) In addition, I rely fairly heavily on “cold-calling” students, i.e., calling on them even if they haven’t raised their hands. If students know that they might be called upon and asked to defend their views, they start to engage with the material in a much more thorough way.
From the professor’s side, the preparation for such a class differs from preparing a lecture, but maybe less so than one might expect. I try to structure my class around questions. I might start with a simple question that asks a student to summarize some key facts about the case or the article that was assigned. This allows me to call on some students who might be reluctant to speak otherwise. As the class progresses, the questions become more like brain teasers, sounding simple, but potentially entangling the students with complexities they didn’t foresee.
While ideally such a class is experienced by the students as very fluid, there is a lot of structure behind it. For each question, I have a list of key points that I would like to have raised, and I know which answer(s) can be used to naturally transition to the next question. The pitfall that I still occasionally fall into is to avoid having this process perceived as a “guess-what-the-professor-is-thinking” game. If students get four out of the five points that I wanted to have raised, I have to stop myself from fishing too long for the fifth one, and simply give it to the students.
To have an interactive class but also to make sure that the material that needs to be covered is actually covered, I have found it essential to be fairly draconian with students who want to stray away from the question that is currently discussed. If I asked, “What is the problem that company X is facing?” and the student answers, “I think they should increase their advertising and they should…” I will politely interrupt and remind the student that I asked for an analysis of the problem, not their suggestions for what to do, and that we’ll get there in half an hour. While students initially might find this annoying, eventually most of them will appreciate that the discussion is not bouncing around in a seemingly Brownian motion.
The other obvious challenge is how to cold-call and put students on the hot seat, and not make them angry at you. Here are some hints that I have gathered from colleagues and experimented with over time. First, it is helpful in the very first class to set expectations. Tell the students how you intend to run the class. Tell them you want to help them learn how to think, argue, and defend their views. And remind them that the classroom is a rather low-risk environment compared to their future work environments. Second, be consistent. I think the worst teaching experience I have ever witnessed was by a professor who started out being “very nice” where every comment was “great” and later in the semester, after students complained that “everything goes,” decided to become harsh and critical. That was quite the flame-out. Third, who you cold-call should feel fairly random. No one should feel picked upon. For example, quite often I start with one student, and then move along the row. (There may be obvious exceptions to the randomness rule. For instance, cold-calling students who come to class late can send a powerful message.)
While there are potential educational benefits of an interactive style, a key reason for me, I have to admit, is because I enjoy it. Every class is a little bit different (which makes teaching the same case study for more than 30 times still enjoyable). And curiously enough, at least the MBA students at the Wharton School, enjoy it too. Interestingly, a common complaint of our students is that we are not “challenging them hard enough” to defend their views in the classroom. Thus, perhaps there is a win-win here.
So what should Omnimax have done? Raised prices? Lowered prices? Maybe neither. Maybe they should have invested more in R&D and introduced a new product. Really? Why?