Real World Meets the Classroom

Yale SOM students learn by taking on some of the biggest challenges facing the business world: outsourcing and globalization, advertising on the internet, climate change, the fate of the U.S. auto industry.

At the end of the first year of the Yale MBA curriculum, students take the Integrated Leadership Perspective — ILP — a course designed to help them pull together all that they learned in the preceding Organizational Perspectives and Introduction to Management courses. Rather than approach a business problem from a single vantage point, such as finance, accounting, or marketing, students must consider the impact on all stakeholders — investors, customers, competitors, employees, etc. By taking into account all perspectives, students learn that real world management problems are multi-faceted, and that managers who understand the interrelated complexities of a business, its industry, and the surrounding society can best resolve them.

The heart of ILP is a series of raw cases — a type of case study pioneered by Yale SOM that presents students not with the highly-controlled narrative of standard cases, but a rich collection of data ranging from SEC documents and industry reports, to video interviews and media clips. The cases are developed by the Yale SOM Case Research and Development group, a three-year old team that has been tasked, along with faculty, with creating new teaching materials that better reflect the way modern business operates. Students are asked to take the entirety of a problem into account, and to come up with real-world solutions. Multiple senior faculty then lead class discussions on the cases, providing their expertise on a problem, and critiquing presentations by students on key aspects of each topic.

Below are synopses and a link to one of the cases covered in this year’s ILP.

General Motors- VEBA

In 2007, negotiators for General Motors and the United Auto Workers sat down to create a new entity to provide retiree healthcare, a Voluntary Employee Beneficiary Association (VEBA). The agreement would shift the responsibility and the risk for retiree healthcare to the new VEBA trust, with GM providing a set amount of money for coverage and in turn being absolved of future obligations to union retirees on healthcare. The deal was hailed as a milestone for the company and union, a path to long-term profitability for GM and a guarantee to its workers.

Much has changed since 2007. But as William Goetzmann, Edwin J. Beinecke Professor of Finance and Management Studies, and Deputy Dean Stan Garstka explained to the class, the deal still provides an excellent case study for assessing the organizational design of a major corporation, the question of healthcare for an aging workforce, how to manage assets for long-term performance, and what such an agreement means for labor relations going forward. Students analyzed all aspects of the deal, from the point-of-view of all stakeholders, ultimately with an eye toward determining whether the VEBA will be able to cover all the retirees as their numbers swell and the money in the trust declines.

In light of GM’s expected move into bankruptcy, one group tried to determine how the VEBA will impact both labor and management if GM did declare bankruptcy. Long-term, healthcare costs are considered a serious burden to the Big 3 car manufacturers. By working with management, the UAW likely guaranteed it would be protected in bankruptcy. "But even then, the long-term ability for VEBA to support retirees is doubtful," said Hillary Beeman '10. "We’d expect the UAW now to push aggressively for universal healthcare. From the union’s perspective, it’s the appropriate strategy. It shifts liability to the government."

Read the General Motors and the United Auto Workers case.

Toys in China

The global toy industry is a $71 billion business dominated by two major players, Mattel and Hasbro. Over the last several years, more and more of their toy manufacturing shifted to China. The arrangement allowed the companies to cut costs, but issues in the factories caused major problems for both companies in 2007 when Mattel recalled nearly 20 million Chinese-made toys because of lead paint and design flaws. The recalls were a public relations disaster for the industry and led to changes both within the companies and in regulations in China and the United States. The entire chain of events, however, serves as an excellent example of how complicated globalization has become.

Students were asked to approach the case from three viewpoints: operations, trade, and legal. Prefacing the trade aspect, Peter Schott, professor of economics, charted the rise of toy manufacturing in China and put it in the context of the rapid globalization of the last fifteen years. Art Swersey, professor of operations research, later added his expertise on how global companies construct their manufacturing operations, while Connie Bagley, professor in the practice of law and management, discussed the liability issues for an organization based in the United States with factories in China. Assessing the impact of the problems with toys, Rachel Crocker Ford '10 noted that rather than placing blame for the recalls with Mattel, the public focused mostly on the role of China. "The problem became not for the individual company, but all in the industry who manufactured in China," she said.

Hearst Case

How does a quintessentially American magazine become a global brand? George Green, CEO of Hearst Magazines International, who attended ILP classes on the case, explained the delicate balance the company had to strike between being aware of local customs and maintaining the crucial aspects of the magazine. "When you look at a cover of Cosmo in the U.S. or internationally, you know it’s Cosmo," he said. "Each country’s edition must be unique, but you need to know what it is, no matter where you are. Coca-Cola is pretty much the same around the world. Cosmo needs to be differentiated in a way that makes it work in a local market."

In a discussion led by Ravi Dhar, the George Rogers Clark Professor of Management and Marketing, and Fiona Scott Morton, professor of economics, students were asked to confront two issues for Hearst International: how it can succeed in China and India, and how it can monetize its product on the internet. They studied the differences between business models, such as joint ventures and license agreements, assessed competition, and measured how the unique culture of each country impacted how — and what — Hearst could publish. The company is making strides in both markets, but when it comes to the internet, Green admitted to being stumped. "There’s no loyalty on the Web," he said. Dhar said that a major problem with the internet is how it changes the equation for how a company creates value. He used the example of Encyclopedia Britannica to illustrate his point. "At one point Encyclopedia Britannica had the best brand in the world," he said. "People would pay $1,800 for their encyclopedias. People thought it would make their kids smart. But when they tried to sell a $100 CD, they couldn’t find anyone to buy it. The value of Cosmo online is not the same as offline. It doesn’t translate easily."

Climate Capital

Climate change has become one of the biggest issues facing the world in the 21st century, challenging nations to decrease their outputs of carbon and other greenhouse gasses, but also providing a potential opportunity for entrepreneurs. This year, Geert Rouwenhorst, professor of finance, and Brad Gentry, senior lecturer in sustainable investments at the Yale School of Forestry & Environmental Studies, wrote a case on one company trying to monetize smart environmental policies. Climate Change Capital is a London-based investment management firm founded in 2004 to find opportunities created by responses to climate change.

Rouwenhorst and Gentry broke down the political climate surrounding climate change and where business opportunities may present themselves. Students were then asked to provide a valuation for a project in Chile for marketing carbon credits that included multiple stakeholders and ultimately decide whether it would be a smart investment for a climate change fund. The case required students to address not just the feasibility of the project but whether changing politics around climate change added greater risk or made the investment more attractive. Sara Maffey '10 noted that a major concern was that the Kyoto Protocol, the international agreement that made a carbon market possible, was set to expire in 2012. "The biggest risk is time,” she said. “If there are construction delays and things get pushed past 2012, the carbon credits might become worthless." At the end of the discussion, Gentry summed up the pros and cons of any deal (as well as the future of Climate Change Capital) and asked a key question: "We know you can get filthy rich killing the planet But can you get massively wealthy saving the planet?"