Patch-AOL's Hyperlocal Experiment Instructors' Notes

RECOMMENDATIONS FOR TEACHING APPROACHESCase ObjectivesThis case is intended for use in a strategic management course. The case fits particularly well with a lesson on corporate diversification strategy or corporate growth strategies. The learning outcomes of this case are a better understanding of corporate growth strategies and the potentially negative effects of rapid corporate growth. After completing this case, students should recognize corporate growth strategies and the interconnection between strategic goals and market conditions, how scale impacts the effectiveness of an initiative, and the impact of ignoring scale effects, positive or negative, in strategic management.In terms of its length, writing style, and content, the case is appropriate for undergraduate juniors and seniors, as well as graduate students. The case was written in a style that provides the background and context of the business problem while avoiding presenting solution alternatives or strategic direction. The information presented allows the instructor to adjust the class discussion to accommodate students with a broad range of abilities and specializations. Specifically, instructors can engage students, including graduate students, to reason through a situation where uncertainty exists and speculation may be required.Suggested Position in Course: Market Analysis, Growth StrategySubject case can be introduced as a corporate strategy case involving a diversification opportunity (i.e. for AOL) but primarily can be considered an entrepreneurial strategy case, helping students to understand the various issues associated with implementing and managing a new business model in an established but changing industry. After completing this case, students should recognize the interconnection between internal resources, strategic goals and market conditions, how scale impacts the effectiveness of an initiative, and the impact of ignoring scale effects.On the surface, the case of AOL - Patch shows the challenges of growing a hyperlocal news web operation in a changing market landscape. However, there are lessons to be learned for any corporate diversification or entrepreneurial effort that involves the introduction of a new business model in an established industry. When viewed through this lens, the case is more representative of many online businesses that are challenging their larger, more established brick and mortar counterparts e.g. online retailers. AOL acquired Patch in 2009 and, within 3 years, expanded the operation to more than 800 sites nationwide without proving the profitability of the business model at any level. At the corporate level, AOL invested up to $300 million into the expansion of the Patch operation during this time period, with most of the expenses related to human resource acquisition. During this time, the hyperlocal news marketplace experienced intense change, mostly attributed to the decline of print media and the emergence of new distributors of local news. By the end of the case, after multiple years without profitability, the Patch operation was forced to reduce in size, laying off many workers and shutting down 30% of the Patch sites. However, this appears to have been a necessary albeit difficult learning opportunity to figure out the magic formula for success and sustenance. The company appears to have eventually figured out how to manage its resources more effectively to manage costs and differentiate/focus its offering (see Epilogue section).The case can be used to augment commonly used strategy textbooks such as Wheelan u0026 Hungeru0027s Concepts in Strategic Management and Business Policy (2014), chapters regarding corporate strategy formulation, and especially chapters regarding implementation and associated change; Davidu0027s Strategic Management: Concepts (2014), the chapter regarding types of strategies and the chapter on implementation, matching structure and strategy, and management of change; Dess, McNamara u0026 Eisneru0027s Strategic Management: Creating Competitive Advantages (2015), chapters regarding corporate-level strategy, entrepreneurship; and possibly as an augment to Grantu0027s Contemporary Strategy Analysis: Concepts, Techniques, Applications (2013), the chapter regarding the resources, capabilities and organizational structural decisions. …