The Henry Tam case is in the course packet. Make sure to pay attention to both the case text and the exhibits when you prepare your analysis. 90% of the score will be based on content, as discussed in the critical thinking grading rubric. 10% will be based on style. While it will be okay to fill in the table below with bullet points, each bullet point should be a full sentence. The analysis should be comprehensive, yet concise; there is no minimum or maximum word count. Grammatical and spelling errors will lower your style score. Total value: 22 points.

1A. Please analyze the opportunity:

Customer value 1. Who is end user and purchaser/decider? Is this a Pro or con and why?

The target market is something the team struggles with throughout the case. The students (Henry and Dana) believe the ideal market is the education market (i.e. elementary school aged children), however the founders believed they should be going after the entertainment market (i.e. junior high and above). Both have sound reasoning for their opinions; however I tend to side with the students that the best approach in the beginning would be to go after the education market because of the inherent benefits available. I will be answering the questions based on the standpoint their target market is the education market.

In the education market, the end user would be younger children (elementary school aged children) with the decision maker being their parent or their music teacher at school. By targeting the younger students, MGI can help develop a sense of love and passion for music at an early age in a child, which opens up avenues for more advanced puzzles as the child progresses and becomes older. I think of McDonald’s marketing of the Happy Meal as a way to attract a customer at a young age and then condition that customer to graduate to different products as they become older. The same consumers then bring their own children back to McDonald’s and the cycle starts all over. MGI has the same opportunity to gain a lifelong customer that would lead to a product with very durable profits. As the child becomes older and their skills advance, they will be able to transition to higher end products. At which time, they will also become both end user and decision maker.

However, in the beginning the decision maker will be either their parents or their music department at school. The decision maker has an increasing appetite for “edutainment” (as it is referred to in my house) where the child is being educated while being entertained. As parents we prefer for our daughter to watch shows like Dora the Explorer, The Backyardigans, Go Diego Go, and other Nick Jr. programs; which at the start of every show explain what benefits the child will learn while watching the show (i.e. appreciation for music, foreign language skills, problem solving, etc.) over mindless cartoons like Spongebob Squarepants.

Based on these reasons I believe their end user and decision makers to be a strong benefit for their product.

2. What is important to each? Is this a Pro or con and why?

The following are important to the end user:

• Challenging, yet fun – While the end user wants to have fun and feel as they are being entertained, they also desire to be challenged. In the case Alex states “When I first saw it, I thought it was a very smart way to teach.” He continued, “As a musician, I appreciate it a lot.” This is beneficial to their product because the way they have differentiated themselves from the competition lends to a challenging, yet fun product.

• Simple – Since the target audience is elementary school aged children, the product has to be easy to use both from a command and reading level. This presents a challenge to MGI because depending on when the end user picks the game up, the reading and hand eye coordination levels could be different from the game level. That could lead to the end user losing interest in the game and also further products.

The following are important to the decision maker:

• Quality – the decision maker, whether it is a parent or music teacher, is looking for a quality product that will teach the children how to play and about music. This is a benefit for MGI based on the accomplishments of Igor and Roman and their ability to mass teach the students, similar to Billy Blanks exercise videos. As mentioned by Alex, the structure of the music and questions are fantastic and make learning easy.

• Save Money – An alternative to their product for parents are private music lessons. My assumption is the product would retail for around $50 which would be much less than private lessons, which is beneficial for MGI.

• Reliability – The decision maker wants to ensure the student is learning the material. Ultimately, that would lead to future purchasing decisions. This is both a pro and a con for MGI since it is reliant on the students applying themselves as well as an individual’s talent.

The items that are important to MGI’s end users and purchasers are both a pro and a con. If their product is done correctly, they stand to dominate the market. For the time period, their product is unique. They have the advantage of being first, however as we have found out being first isn’t always a guarantee of being the best. Sometimes being first means you are the guinea pig and the subsequent entrants into the market have the advantage of learning from your mistakes while they may be stuck with an inefficient platform or partner. If they don’t get it right, the importance of end user and purchaser would be negative for their product. What Roman and Igor may perceive as “simple” may be too advanced for their end user, leading to frustration, resentment, and finally abandonment of the product altogether. At the same time, the purchaser may see their students are not progressing as they had expected and look for alternatives.

3. What kind of innovation is this? Is this a Pro or con and why?

MGI’s product is an evolutionary innovation. It takes teaching and learning music to the next step, the electronic step. Prior to MGI’s product if a student wanted to learn music they were forced to a private instructor, which may or may not be available depending on the students location and income level. MGI opens up a new avenue for students that may not have the means to afford a private instructor to learn about music. Furthermore, they are learning from accomplished musicians at a lower cost.

The major advantage of an evolutionary innovation is that it does not require the end user to change their behavior. Rather it is the next step for a product or service. In this case, the “music instructor” has a mass market that can be taught electronically. Evolutionary Innovations tend to be positive because they build on or enhance existing products and services. I see this as the same case MGI’s product.

4. What/who is the competition? Is this a Pro or Con and why?

MGI’s competition is traditional music instructors and other computer games that have similar features. MGI has advantages over their competition and they are also at a disadvantage in areas.

Traditional Music Instructors Advantages • Mass Market – MGI has the ability to market their product world-wide, whereas a traditional music instructor is confined to a specific geographical area • Cost – The “per lesson” cost of MGI’s product is a fraction of the cost of traditional music instruction. In essence, Roman and Igor are creating one lesson when they develop the software and then that lesson is distributed to multiple customers. • Quality – In most cases, Roman and Igor would be considered more accomplished musicians than a traditional music instructor. Therefore, the student has the benefit of their talents. Disadvantages • Individualized training – While the game can be customized to each individual’s level, they are not physically with each student monitoring their progress. A personal instructor will:

▪ Assess the individual abilities and needs. ▪ Help set realistic and achievable goals. ▪ Instantly adjust an exercise if it is proving to be too advanced. Likewise, the instructor could add a difficulty level to the exercise if it is too easy and isn't giving the necessary challenge.

The game does not have the ability to make those instantaneous adjustments for the students. • Less chance for abandonment – Speaking from personal experience, it is easier for me to abandon a product if I don’t have to physically go somewhere to use it. The example that comes to mind is the Home Workout DVDs that are collecting dust on my shelves. I have found I have much more success when I have to go to the gym to do a workout. This may not be the case for everyone, but I know there are a lot of people that have tried home based workouts or learning systems and just quit because there was something else that caught their attention.

Other Computer Game Manufacturers Advantages • Potentially own the patent – This is huge for MGI because it limits entry into the market of competitors and also opens a potential revenue stream should they decide to sell the patents or portions of the patent. • Unique User Experience – As mentioned in the section about User and Purchaser decision making, this could be both positive and negative. It is something that differentiates MGI from the market. They are the first to do it and if they do it well it is a major advantage. Disadvantages • Brand Recognition – They are small and not a well known company. A larger competitor could come in and offer a similar product that may not be as good, but with the name brand backing and marketing efforts can zoom right past MGI as the industry leader. • Capital – MGI does not have the financial backing (yet) of their larger competitors to properly position and distribute their product. • Direction – All of MGI’s competitors know the space they are playing in – education or entertainment. MGI bounces back and forth on where they need to be. While they are trying to figure out which industry they are going to be in, someone else could come in and position themselves as the leader in the industry.

5. How does this product differ from the competition? Is this a Pro or Con and why?

MGI’s “music puzzle” draws upon mixing tracks to produce a piece of music. MGI’s software platform allowed almost any musical composition to be turned into a game by taking apart the final musical version and reassembling using the individual tracks. The player could try to select the correct tracks to recreate the original piece or create a new composition. As Igor states in the case, “Our product allows the music lover to get right into the music…” It is the ability to combine new tracks with the “correct” tracks from the original that really differentiate the product.

MGI’s differentiation from their competition is an advantage. They are bringing a new way to learn music to the masses. Before their product, music lessons were limited to either the school a child was attending or by private lessons. In a lot of cases, quality instruction is not available. Or quality instruction was out of the price range of the school or parents. MGI opens up doors for children of all ages and income levels to learn music in a fun and educational way.

6. What is the market niche? Is this a Pro or Con and why?

The market niche is elementary school aged children that have a desire to learn classical music. As parents, we don’t know whether our children are going through a phase or genuinely interested in something. MGI’s products give parents a way to allow their children to test their interest level without making a huge investment in time and money.

The advantage for MGI is they are alone in the niche for the time being. They are in the enviable position of one of their competitors, Private Instructors, either not knowing they exist or potentially using their product in their own instruction; and the other, software companies in the entertainment industry, not wanting to bother to enter the industry.

7. How fast is the market niche growing? Is this a pro or a con and why?

During this time, the need for edutainment was increasing. Children’s education channels, video game consoles, and computer games were becoming more and more popular and accessible. People have an appetite for electronic learning systems like MGI’s products.

The growth of the market niche is positive for MGI. As mentioned above, they could position themselves as the McDonald’s of this industry. They have a growing population of children whose parents want them to learn while being entertained and the prices of gaming and computers are coming down to a point where pretty much everyone can afford one. Their job is to gain the customer and keep the customer as they progress. If they can do that, they’ll be in a good position for the future.

Founder/Team Fit 1. How strong is the human capital? Is this a pro or a con and why?

The founders (Sasha, Igor, and Roman) have very strong Human Capital in certain areas and very weak Human Capital in other areas, so to overcome the weaknesses they decide to pull in help in the form of four students – Henry, Dana, Alex, and later Dav.

The founders’ strengths are: • All three were committed to the company, they poured everything they had into it • Roman and Igor are extraordinary musicians • Sasha, a graduate from Harvard Business School, has a business background and is a good salesperson. • They were successful raising some initial funding

The founders’ weaknesses are: • They were unable to market the product in time for Christmas • They had limited Industry knowledge • Their software knowledge was adequate, but not spectacular • They had no leadership and lacked a sense of direction • They are difficult to work with

The students possessed the human capital the founders’ lacked in the form of: • Alex possessed the music industry knowledge • Dav possessed the technology knowledge • Henry and Dana possessed organization and an ability to analyze information and make informed decisions.

They have smart people on the team. They are just 7 smart people that happen to be trying to work together, but they can’t for one reason or another. I don’t believe any one person is to blame for the poor human capital, I believe everyone is. There is too much dissention and too many “good ideas” floating around with no one taking action on any of the good ideas. They suffer from both analysis paralysis and too much brainstorming, which is pretty difficult to do. So, they’ll flap around in the wind and probably miss another important date. Human capital is an overall weakness of this team.

2. How strong is the social capital? Is this a pro or con and why?

As with the Human Capital, the founders and team possess both strengths and weaknesses. As stated in the case text, Roman and Igor’s established relationship with world-class musicians in Russia allowed MGI to commission first rate performances and recordings at a much lower cost than in the US. They also were able to team up with an experienced New York web designer and contracted top software graphics talent to produce the game. The students also possess relatively strong social capital. Henry worked as a strategy consultant for Price Waterhouse Coopers, Dana has experience in the banking industry, Alex can draw off his experience in the music industry, and Dav can utilize his MIT connections. The founders and team are lacking the go to market experience within their core group. They need to find the loose ties to bridge the gap. Otherwise, their social capital would have to be considered a weakness.

On paper it seemed the team fit together nicely and had all the pieces in place to be a successful unit; however the case showed their personality conflicts often got in the way. The founders were used to working alone and somewhat wary of bringing in outsiders. Roman goes as far as saying, “Maybe we’re not easy to work with.” And then goes on to explain they have brought a few people in and all have left for one reason or another. As we get into the case, it becomes obvious there is a disconnect between the founders and the students. Sasha viewed Dana and Henry as interns and Dana and Henry viewed themselves as leaders and facilitators in shaping the vision. As the case progresses, we see Dana and Sasha engaging into an adversarial relationship that ultimately leads to a standstill in the progress towards a business case the group could all agree on. The team’s inability to work together paralyzes any Human and Social Capital they possess.

Profit Durability 1. Is this a blue ocean or red ocean strategy? Is this a pro or a con?

MGI is creating a Blue Ocean Strategy based on their Value Innovation. MGI is creating value for both the buyer and the company through their software platform that allows the user to both create new music and put together the “correct” puzzle. This innovation creates value in the market while simultaneously reducing the features and services of the current market (i.e. personal music lessons).

Blue Oceans by nature are positive for the company that creates the product because: • They are allowed to make the rules as they go along • If a brand doesn’t exists, as is the case with MGI, it builds a brand • They attract customers in large volumes, thereby putting would be imitators and competitors at a significant disadvantage • They can scale to meet customers’ demands in both size and price easily

2. Assess the competitive advantage (or lack of it) based on the Five Forces:

• Buyer power is weak because there are numerous and fragmented buyers • Supplier Power is weak because of the weak buyer power • Barriers to entry are low because there is little brand franchise, access to distribution channels, and common technology as well as low exit costs associated with independent businesses. However, the knowledge required to create competition is a major barrier to entry. • Competitor Rivalry is weak as there are few companies playing in this space. • Threat of Substitutes is strong based on potential entrants into the market and changes from traditional music lessons

Strong competitive advantage is only achieved by having low costs and/or doing something different from the competition. The products must add value to the customer, justifying their willingness to pay the asking price for the product, which creates a profit for the company. I believe MGI is poised to assume a strong competitive advantage based on the relative weaknesses of the five forces.

1B. Summarize whether or not you think it is a good opportunity and your key reasons.

Early in the semester we discussed what makes a good opportunity. Based on the five opportunity characteristics that make up a business opportunity, I believe MGI to be a viable opportunity.

1. Creates a value for the customer – yes, their product creates a value for the customer and it is less costly than traditional music lessons and “more fun.” The benefit exceeds the cost. 2. Significant Profit Potential – This is yet to be determined. The group must find the right market niche and gain entry as soon as possible into that market to be successful. 3. Good founder fit – As mentioned above, the founders are a good fit from a musical and educational standpoint, yet they lack direction and appropriate marketing of their product. 4. Profit Durability – MGI has created a Blue Ocean Strategy and will have some amount of time where they have relatively few, if any, competitors. If they use this time to improve their product, increase brand awareness, and increase their market share they should be able to position themselves as the market leader 5. Amenable to financing – Sasha has been able to gain some financing before bringing on the students. I would suspect after their business plan is completed and direction defined they would be able to attract future investors.

2. What should the main characters do now and why?

A. First, state the issue(s) they are facing and the key decision they need to make.

The team is facing two main issues – the business proposal is due in the near future and the team is fragmented and lacks leadership.

The immediate issue the team is facing is they are unable to agree on where to market the product and the Business Proposal competition is in three weeks. The founders, specifically Roman and Sasha, firmly believe the product should be marketed within the Entertainment and Music industry, while the students, specifically Henry and Dana, are convinced the product would be better suited in the Education market. However, the long term issue is the fractions that exist within the team that have paralyzed any progress they could have made and will lead to eminent failure. The team needs a leader that can accept input from the team and decide on final direction.

B. Then, identify 2-3 alternative courses of action and state the pros and cons of each.

1. To meet the short term need of submitting their plan for the competition, Henry has a few options: a. He could write the business plan based on his research and the belief he shares with Dana the company would be better suited in the education market. The only advantage to this solution would be he has submitted his proposal to the contest and it will probably be pretty good. Unfortunately, this alternative is packed with negative consequences. He would alienate the founders, his submission would stand very little chance of winning or gaining any financial support, and he would have wasted all of the time and effort he put into the project. b. He could side with the founders and write the plan for the Entertainment market. The advantage to this solution is he would have the support of the founders. Unfortunately, he would be in a position where he would compromise his research and again he would stand little chance of winning or gaining financial backing. c. They could work on a short term plan that focuses on the Education market and a long term plan that incorporates an entry into the Entertainment market. The advantage is he is able to accommodate both sides and move the project forward in a healthy manner. The disadvantage is the company and team members may fragment even further and work on the industry they believe the company should focus on.

2. The team is fragmented and lacks leadership. To resolve this problem, Henry has a few alternatives: a. Select a leader that is currently on the team. The advantage to this approach is the person is familiar with the product, understands the team dynamic, and there is no need for a search. The disadvantage is no one on the team has the skills, personality, and full respect of the rest of the team members necessary to take on this role long term. b. Select a leader from outside of the team. The advantage to this is the person does not have any pre-conceived notions about the team members and the internal struggles that have taken place. The disadvantage to this solution is the person may lack the product familiarity necessary to make decisions, which could lead to decisions being made by who is most convincing. Additionally, they could spend an good deal of time searching for the right person only to run into the same issue of not be able to get along with the founders. c. They could remove Dana and/or Sasha. Dana and Sasha have had personality conflicts from day one. Their inability to work together is the primary reason for the team’s struggles. The advantage of removing one of them could lead to the team being able to at least function. Neither have skills that are irreplaceable, however their social capital may be missed and the founders would not oust Sasha since he is one of their own. It would also lead to further time wasting trying to decide who to remove.

C. Finally, recommend one of the alternatives and explain why it is the best.

The team must solve both issues in order to proceed. I believe it is too late to search for an outsider to lead the team, so the only viable option is to move forward with the team that is currently in place. MGI made a critical mistake by not discussing and agreeing upon roles and responsibilities early in the process. The disconnect between the founders and the students as far as “intern” versus “strategic visionaries” should have been resolved in the first meeting. By allowing this disconnect to fester, the tension between Sasha and Dana was allowed to grow to the point where nothing was accomplished. Simply put, there are too many cooks in the kitchen. To right the ship, the team needs to instill someone as their leader, someone that can: • Create a vision and create allegiance to the vision • Communicate effectively with each member within the team • Recognize and maximize the unique and numerous strengths of the team members towards the vision • Assign tasks and responsibilities and hold everyone accountable for their assignments.

I would recommend Henry assume the leadership role because he is organized, the team members like him, he is confident in his abilities, and has a passion for the project.

His first order of business should be to set the expectations with the team for roles and responsibilities to ensure the business proposal is submitted on time. I would recommend the team be structured as follows: [pic]

With the appropriate structure and expectations set, Henry can focus on solving the issue of the appropriate market to attack. I would recommend he works on a short term plan focusing on entry into the education market with a long term plan to enter the entertainment industry. By focusing on the education industry, the team is attacking an industry they have research showing it to be the best market. Henry should task Dana with researching and using the group’s social capital to help MGI enter the industry. Alex should be focused on creating a marketing plan within the Education Industry. Sasha should be directed to focus his efforts on developing and selling within the education channel. Igor, Roman, and Dav should begin working on enhancements to the product to be released in the late summer to coincide with the new school year. As for Henry, he should focus on completing the Business Proposal with the defined direction for the competition.

After completing the Business Proposal competition, the team should evaluate if they have the right people in the right positions. As stated in the case, maybe they need to bring in an outsider with tenure and experience marketing a product like this. But for now, they need to get their proposal completed with the team they have.