Strategic Final

T/F Google was the first to pioneer search

False

T/F Competition occurs at the corporate level

False... at the business-unit level

T/F Core competencies deal more with business unit strategy

False... more with corporate strategy (multiple businesses)

Whats App

Fewer contacts (20) vs. Facebook (980); higher engagement Usage - not growth - is the indicator of network effects Used the phone as log-in (low barrier to usage)

There are three tests for diversification: attractiveness, ____________, better-off tests

cost-of-entry

The Early Majority are called ___________ and make up the largest buying group

pragmatists

History of P&G (reading notes)

New Lands and Dynamic Growth: 1945 - 1980 In 1946, P&G introduced Tide, its most important new product since Ivory Tide was remarkably superior to other products on the market & quickly became an enormous success; helped fund the company's rapid growth not just into new product lines but also into new worldwide markets - New formula cleans better than anything currently on the market; superior performance at a reasonable price In the years after Tide's launch, P&G made its mark in several new businesses Crest, the first fluoride toothpaste, rose to market leadership on the strength of an unprecedented '60 endorsement by the ADA; 1955 launch Pulpmaking technology -> growth in toilet tissue & paper towel businesses Entered the consumer paper products business in 1957 with the acquisition of Charmin Paper Mills Invented the disposable diaper category with Pampers's launch in 1961 Strengthened its existing businesses, expanding into new food/beverage categories - most notably with the Folger's coffee acquisition in 1963 - & built on its strong laundry reputation with Downy, its first fabric softener 1947 - 1952: P&G's detergent technology -> development of a wide range of products i.e. granulated & liquid detergents, shampoos, toothpastes & household cleaning products that provide growth opportunities Most important, was P&G's growing focus on international businesses Convinced that its success in new geographic markets required on-the-ground operations in these countries, P&G began building start-up businesses, first in Mexico, then in Europe and Japan By 1980, P&G was doing business in 23 countries, with sales of nearly $11 billion and earnings 35x greater than in 1945 ... A Global Company: 1980 - 1999 Sales reach $10 billion in 1980; in 1993, sales exceed $30 billion and, for the first time in Company history, more than 50% of sales come from outside the US As it approached its 150th anniversary in 1987, P&G was poised for the most dramatic period of growth in its history The company that began as a small Midwestern partnership had grown into one of America's largest multinational corporations Two important changes marked this dynamic period: - First, the company emerged as an important new player in health care (through the acquisitions of Norwich Eaton Pharmaceuticals and Richardson-Vicks and the opening of the Health Care Research Center in Cincinnati) and in cosmetics and fragrances (with the acquisitions of Noxell, Max Factor, Ellen Betrix and Giorgio of Beverly Hills) - Second, P&G expanded its globalization plans; established a worldwide R&D network, with research hubs in the US, Europe, Japan & Latin America, and built a solid foundation of truly global brands (i.e. Pantene Pro-V, Always/Whisper, Ariel and Tide, Crest, Pampers, Vicks and Oil of Olay) ... 2000 - Today In the spring & summer of 2000, P&G experienced one of the most demanding challenges in its history; after missing earnings commitments, its stock declined dramatically, resulting in a loss of nearly $50 billion in market capitalization A.G. Lafley, who became CEO in June 2000, reaffirmed P&G's Purpose and Values and refocused the company on the few choices necessary to get the business back on track: growing its leading categories and brands with its largest retail customers in its top geographic markets while accelerating growth in health, beauty and personal care and in fast-growing developing markets In the 5 years that followed, P&G increased sales more than 40%, doubled profits, generated more than $30 billion in free cash flow, and delivered more than $70 billion in shareholder value In 2005, P&G merged with The Gillette Company - following the acquisitions of Clairol and Wella earlier in the decade With a portfolio of 22 billion-dollar brands and a market capitalization of nearly $200 billion, P&G established itself as one of the ten most valuable companies in the world by respecting the consumer as boss and fulfilling its purpose: touching lives and improving life every day ... Three billion times a day, P&G brands touch the lives of people around the world P&G has one of the strongest portfolios of trusted, quality, leadership brands, including Pampers, Tide, Ariel, Always, Whisper, Pantene, Folgers, Charmin, Downy, Lenor, Iams, Crest, Oral-B, Actonel, Duracell, Olay, Head & Shoulders, Wella, Gillette, & Braun The community consists of nearly 140,000 employees working in 80+ countries

T/F As P&G grew, they actively managed their portfolios and drove more economies of scale

True

Most Sophisticated Manufacturing/Automated Process in the World (in-class video)

12 inches in diameter; 25 moved at a time Automated material handling system as transportation vehicle between processing tools

T/F The semiconductor industry has high FC and R&D costs, but low marginal costs

False... high for all three Hard to do, expensive (fabs cost millions of dollars) -> high barriers of entry China is the biggest entrance into industry right now; a lot of companies likely fail

Silicon Manufacturing & the Perfect Wafer (in-class video)

Finding a needle in a million haystacks Thousand core processors in a wafer Try to make perfect, wafer with all processors functioning Defects almost invisible so goes under ultra-powerful microscope and even have difficulty seeing problems with that

US slow to adopt

Current back offices all opposed to it, privacy, incumbents don't want it to happen, culture

Goldman Sachs' Digital Journey (reading notes)

In early 2017, Lloyd Blankfein, Chairman and CEO of Goldman Sachs, was continuing to steer the company in a new direction; proclaimed it's a technology firm and platform Started offering clients access to its in-house data, analytics, & risk-management tools in 2013 through a technology platform named Marquee; allowed clients to integrate high-value proprietary data and applications into their own systems, but retain the flexibility to make purchases with a competing firm Prompted many in the industry to wonder why Goldman was giving away its "secret sauce" Structured Investment Marketplace and Online Network (SIMON) enabled clients to create and buy structured notes online in denominations as low as $1,000; mainly served smaller clients, including independent and regional brokers and private wealth managers, not Goldman Sachs' typical institutional client In 2016, GS opened SIMON to competitors, letting clients buy securities direct from GS or from a # of additional issuers (i.e. Wells Fargo, CIBC, and TD Bank Group) 1869: Marcus Goldman provided short-term capital to small-business borrowers & connected them with investors willing to buy out their promissory notes; took small fee Short-term unsecured corporate loans later became known as commercial paper Hired his son-in-law, Samuel Sachs, & formed Goldman Sachs At the turn of century, GS branched into new business lines, including foreign exchange & currency services, joining the NYSE in 1896, & advising corporate clients By 1920, managed IPOs for Sears, B.F. Goodrich, and Merck In the 1930s, Goldman entered the securities/trading business, which grew alongside investment banking services & over time became its second primary business Expanded internationally in the 1970s and added private wealth management services and a fixed-income sales and trading division In 1981, through acquiring J. Aron, secured a presence in commodities trading & created a merged division for Fixed Income, Currency, and Commodity sales, trading, & analytics Went public in 1999 & raised $3.7 billion from the sale of 12.5% of the company's shares Reported net revenues of $13.3 billion, but, after its IPO, continued to grow rapidly & in 2007 boasted record revenues of $45.9 billion, up 246% from 1999 The Equity and FICC divisions experienced a meteoric rise Significant driver of this growth was mortgage-backed securities (MBS), the bundling of mortgages for sale as an investment In addition to originating and trading MBS, Goldman & its competitors bought and held MBS, increasing their risk exposure to the U.S. residential marketplace—risk that the firm hedged by short-selling MBS & investing in default insurance (credit default swaps) Benefited from its long positions as the MBS market grew through the first half of 2007 When mortgage market faltered thereafter, GS suffered losses on MBS they owned but generated large profits from shorts & credit default swaps -> more attention Many market factors led to the 2008 financial crisis: record-low interest rates, monetary tightening, growth of loosely regulated subprime lending market, rise in home prices, proliferation in the #/complexity of securities backed by, or linked to, mortgage values May have worsened by a decrease in regulation and oversight, including the repeal of the Glass-Steagall Act (which supported the separation of commercial from investment banks), & a decrease in the amount of capital banks had to hold Led to an unprecedented number of corporate bankruptcies and distressed sales To stabilize markets, govts & central banks took drastic measures: injected capital purchased toxic assets, cut interest rates, & brokered the sale of insolvent bank After the financial crisis, the U.S. govt & international organizations created new industry regulations and strengthened existing rules to avoid future systemic financial crises Obama signed the Dodd-Frank Wall Street Reform & Consumer Protection Act in 2010, and international regulators introduced more reforms through Basel III The Volcker Rule, part of the Dodd-Frank Act, now prohibited proprietary trading; capital and liquidity requirements were much stricter, and regulation dramatically changed the derivatives market Since it received US govt financial assistance during the crisis, GS changed from an investment bank to a bank holding company, which brought additional regulation & cost GS had to recover from the crisis and contend with a global economic downturn and badly damaged financial system, which resulted in volatile markets & lower projected growth Central bank monetary policy held interest rates near 0, also lowering profits Regulatory changes, along with the challenging operating environment, contributed to a sharp reduction in revenue and earnings for GS and its peers In 2008, GS posted its lowest net earnings since 1998; results in 2011 were concerning, with net revenue down 37% & pre-tax earnings down 65% compared to 2007 Technology key to making GS & the industry more transparent & better at managing risk Using large-scale data to analyze risk in real time is now the Wall Street norm Data and algorithm-driven "quants," rather than traders who relied on their instincts, became far more valuable in the industry Technology's impact on the financial industry accelerated even further after the crisis The spread of cloud platforms, open source software, & application program interfaces (APIs) drastically reduced the time and cost to build technology Enhanced Goldman's ability to develop and integrate technology, but also led to the rise of new competitors in financial technology (fintech) Recognizing the opportunity for GS, execs worked to incorporate & leverage digital tech 2 examples of GS' technology-driven innovation were the creation of a hybrid cloud platform using open standards & APIs; and a "data lake" or "a single firm-wide data repository to generate new insights for clients, which can conduct machine learning" "GS' Securities Division, operating at the center of global financial markets and serving institutional clients, doesn't face a direct threat from the explosion of fintech companies" Risk intermediation is highly regulated, and successful firms need a large balance sheet, major investment in infrastructure, & a substantial, often global, footprint -> difficult for new entrants to enter & why fintech companies have largely focused on less complex segments of the marketplace, such as consumer lending, digital payments, personal finance, and wealth management GS is participating as investors/clients, but there's still a need for regulated banks Integrating technology was both an inevitability and an opportunity for Goldman With downward pressure on revenue/earnings, GS execs recognized the need to reduce expenses through operational efficiency, strengthen their core businesses, and position the firm to capitalize on new business opportunities Chavez helped design and implement GS' digital strategy; offered a unique combination of skills/experience in both the tech & financial services industries Chavez's team created a tech strategy for modernizing GS that began with a focus on internal efficiencies & included the creation of internal and external platforms Gaining efficiencies through technology was not a new concept for Goldman In the early 2000s, GS began to automate its US cash equity trading desk -> dramatic shift in the # & responsibilities of its personnel, from 600 equities exchange floor traders in 2000 to 2 & hundreds of computer engineers in 2017 Cash equities was the first business to start moving electronic, not just at GS but across the industry; GS among the first to realize that all internal workflow could be automated Chavez's team centralized core components of work and removed duplication Instead of having 7 separate and distinct teams, FICC has 7 smaller teams focused on what's unique to each business and 1 bigger team underneath Process (shrinking 7) required significant alignment from business units that were responsible for their own profitability and therefore prized their autonomy Need discipline to get 7 businesses to make the short-term sacrifice necessary for standardization; costs of developing these platforms are allocated back to the businesses so the short-term pain is real Shift from financial products to apps is organizationally complex to manage As GS developed its technology platform for internal purposes, it saw an opportunity to offer direct access to its internal tools to a select group of institutional clients "Used to go back and forth with clients on the phone until they were satisfied with the product we developed for them, so gave them direct access to platform/tools" System was developed with APIs accessible to internal business units or external clients; suite of apps grew to incorporate tools facilitating risk analytics, portfolio construction, market data and research, sales, trading, & post-trade tracking Each app was first designed to meet an internal need, which allowed for an iterative development process and exhaustive testing; originally built for internal use, but designed for easy internal and external integration Marquee suite of apps was built on top of SecDB, a powerful analytics database that tracked and managed risk, and represented "twenty-five years of continuous innovation" SecDB calculated 23 billion prices daily across 2.8 mil positions & 500,000 mkt scenarios SecDB helped GS/clients price securities, analyze potential trades, & monitor risk StrategyStudio: 1 of the first Marquee applications; a portfolio construction tool that lets clients quickly build & analyze a custom investment strategy using indices & GS baskets across both equities & fixed income; provides back-testing, & advanced capabilities to monitor & manage portfolios on a daily basis By making apps available to clients, GS hoped to claim valuable space on clients' desktops & enhance customer dialogue that'd position the firm as a preferred partner for trade execution and other transactions Tighter client integration had the benefit of creating a potential competitive advantage; however, many saw this as a risky strategy and question whether GS will win enough client business to justify sharing more of its analytics with clients Wondered if clients would use GS' tools to do the analysis for free and execute those trades with a competitor SecDB had been a source of substantial competitive advantage for GS, and the firm viewed it as a highly valuable asset "If we don't cannibalize ourselves, someone else will" New regulations were pointing towards the unbundling of research & execution Europe was planning to introduce new regulation in 2018, which would require firms to unbundle research and execution In addition to leveraging technology to create internal efficiencies & strengthen its core business with existing clients, GS pursued new lines of business & new customer groups SIMON was designed to help clients build and purchase structured notes, which were highly customized risk-return products Structured notes were popular in Europe but had limited US penetration due to a highly fragmented mkt of broker-dealers & investment advisers unfamiliar with it SIMON was built with new target customers (broker-dealer channel) in mind SIMON provided a web-based, easy-to-use, end-to-end marketplace for these notes that focused heavily on product education, risk assessment, and oversight Clients can do scenario analysis of maturity and cost by issuer and get the info they want themselves, like Google; giving clients access massively decreases the sales cycle In 2015, the first year of SIMON's operation, Goldman attracted thousands of advisors from 18 brokerage firms, representing client assets close to $2 trillion Without a retail sales force, GS had historically been unable to reach smaller broker-dealers and non-Goldman investment advisers; by creating the SIMON online marketplace, GS not only created the ability for its clients to create, analyze, and buy structured notes electronically, but it also built a channel through which it could reach an entirely new customer base In 2016, Goldman opened SIMON to competitors, letting SIMON users buy structured notes not only from GS, but also from rivals (i.e. Wells Fargo, CIBC, TD Bank Group) 2 key factors influenced GS' decision to move to a multi-seller platform: reach and variety of offerings Having multiple issuers lets clients mix and match credit risk against payoffs Moving to a multi-seller platform -> increase in customers, trade value, and structured note sales 2 groups at GS were instrumental in implementing its firm-wide technology strategy The Principal Strategic Investments Group launched in 2000 with the dual goals of leveraging technology to shape and build market infrastructure for Goldman's core businesses and managing the firm's $1 billion strategic investment portfolio - Led by Darren Cohen and consisted of 30 employees, sourced from different functional areas across the firm and through its network in major technology hubs - The breadth and depth of experience within PSI equipped the team to work effectively with individual business divisions and to make targeted investments - Worked closely with the Securities, Technology, Operations, and Consumer & Commercial Banking, & informally with Investment Banking/Research - Embedded in the business divisions (as opposed to outside execs) to stay close to business needs and to foster a collaborative working relationship - Played a consultative role, helping domain specialists define/document business needs & build implementation plans, which would -> firm investment if viable - Created a consistent process and investing discipline that was implemented across the firm, but worked hard to stay close to each business unit - A deeply matrixed and integrated web of relationships and credibility - Must invest time to develop trust between PSI and the business owners - Has worked with many different asset classes, including equities, interest rates, commodities, credit, and foreign exchange - Acted "partly as a venture capital" group as well as worked with domain experts across the firm to shape the product offerings at existing companies - Focused almost exclusively on technology relevant to Goldman's core businesses - Performance was measured against two benchmarks—a qualitative measure of its strategic impact on individual divisions and the firm, and a quantitative measure of its return on portfolio - In early 2017, the portfolio consisted of approximately $1 billion in investments The Digital Strategies Group was created in 2016 as a complementary cross-functional group to coordinate digital strategy across businesses and oversee implementation across the Securities Division - While PSI concentrated on enhancing individual business units and managing the external investment portfolio, DSG focused more on internal coordination across the division, in which asset classes historically operated very independently - The initiative had strong support from senior management at the firm - Works with the Franchise Desktop Group to automate and enhance franchise workflows through ongoing investments in Customer Relationship Management (CRM), data analytics, internal web apps, bots, and Symphony - Oversees Marquee initiatives by approving plans, reviewing product roadmaps, aligning resources, measuring progress, & coordinating go-to-market strategy - As GS digital initiatives expand, DSG will enable GS to make globally coordinated, cross-product, timely decisions on the strategy, resourcing, implementation, and marketing of its digital offering During the crisis, GS became a bank holding company -> ability to sell to retail customers Took advantage of this option in 2016 and launched GS Bank, its online savings bank for retail consumers, which offered customers significantly higher interest rates and no minimum deposit Launched Marcus: online lending platform offering personal loans to consumers; provides consumers with a transparent and simple approach to consolidate their high-interest credit card debt - Creditworthy borrowers can apply for fixed-rate, no-fee personal loans of up to $30,000 for periods of two to six years - Let GS reach retail consumers directly, a big departure from its focus on institutional or even high-net-worth investors Consumer deposits at GS Bank provided Goldman with lower cost capital than its traditional funding sources, and Marcus leveraged the firm's experience with managing risk and provided another outlet for its balance sheet "Lending is a service that involves risk management & can be delivered digitally; using APIs and automated processes, GS was able to launch it within a year" Catalysts (i.e. regulation and advances in technology), drove GS to adapt and innovate Post-2008 reality forced GS/competitors to reassess where to play and how to compete

Why Mobile Payments Are Still So Hard for J.P. Morgan (reading notes)

The bank has spent $100 million on its latest attempt to capture a market now dominated by technology firms and non banks Many U.S. companies from startups to Apple Inc. have struggled to gain traction in the fast-growing world of mobile payments The country's largest bank is no exception J.P. Morgan Chase, run by chairman and CEO James Dimon, has made numerous splashes to promote its mobile offerings, including a television spot featuring a ping-pong playing Serena Williams; the payoff has yet to come Banks view mobile commerce as one of their biggest opportunities, but they still largely trail technology firms and non-banks such as Visa Inc. and PayPal Holdings Inc. Still, banks are pushing to expand offerings to have them in place for the day when the general U.S. consumer flocks to paying with their phone as much as millennial consumers have begun to do or those in other countries such as China J.P. Morgan's newest focus is on Chase Pay, which is designed to make it easier for customers to pay with their smartphones in stores and online The bank has spent about $100 million on it While J.P. Morgan doesn't disclose financial details about Chase Pay, a May survey from Bernstein Research ranked it ninth among U.S. mobile wallets with only 6% of online shoppers saying they'd used it in the previous year, a fraction of the 61% who said they used PayPal The bank is now reframing its plans as more of a long-term play J.P. Morgan executives still project that Chase Pay could at a minimum enhance its customers' credit-card, debit-card and merchant relationships Still, the app isn't widely used yet and the rollout with merchants has fallen behind schedule, according to people familiar with the matter "We're trying to get Chase Pay embedded in as many places as possible," Mr. Dimon said at an industry conference in September; "We'll see how it pans out." It's a far cry from J.P. Morgan's announcement of the product at a large financial-technology conference two years ago in Las Vegas The payment app's struggles also contrast with the rapid migration the bank's customers are making to mobile for variety of basic banking functions like watching balances and depositing checks With payments, J.P. Morgan has been challenged by two factors: competitors have moved quickly while potential customers have moved slowly Most Americans still prefer using their cards, along with cash and checks While Chase Pay works through the bank's cards too, there hasn't yet been enough of an impetus to switch, analysts say "Customers aren't out there asking for a new way to pay," says Brendan Miller, a principal analyst at Forrester Research Inc. "Too many of these players are focused on the payment, not the things that are going to drive the consumer to buy. Other countries, notably China, have taken to mobile payments more quickly; there, payments are often integrated into text messages, and analysts estimate the size of the mobile-payments market is 30 times or more the size of the U.S. business In the U.S., rivals to J.P. Morgan have stressed other approaches, including Bank of America Corp. , which have avoided their own branded mobile wallets Meanwhile, J.P. Morgan joined a group of large banks in June in connecting their existing smartphone apps to an industry consortium that developed a money transfer network known as Zelle to compete with PayPal's Venmo That effort replaced large parts of J.P. Morgan's earlier mobile payment effort, Chase QuickPay, which now works through Zelle, even though the bank still uses the QuickPay name The bank's payment business, run by consumer-bank head Gordon Smith, is also competing with smartphone makers like Apple and Samsung Electronics Co. , and credit card networks like Visa and Mastercard "We said from day one that changing customer behavior would be tough," J.P. Morgan spokeswoman Trish Wexler said, in regards to Chase Pay; "But we're Chase, and our customers expect us to lean into the future and learn what we can now so we're ready when they are" J.P. Morgan is laying the groundwork by signing on large retailers including Wal-Mart Stores Inc., Best Buy Co. and Starbucks Corp. J.P. Morgan initially announced other big retailers through an industry consortium, including Target Corp. , but didn't roll out Chase Pay with some of them after the consortium dissolved Chase Pay faces even more competition than it has seen so far Wal-Mart, while still accepting Chase Pay, has been developing its own parallel wallet dubbed Walmart Pay In early 2018, stores including West Elm and Pottery Barn will start accepting both PayPal and Venmo for the first time Meanwhile, a July survey from Morgan Stanley analysts found that PayPal was accepted at 377 of nearly 500 top online merchants while Chase Pay was accepted at only four In July, J.P. Morgan and PayPal announced a partnership slated to roll out in mid-2018 that will make it easier for J.P. Morgan customers to add cards from Chase Pay to PayPal's app The deal would also let the customers use Chase reward points to pay for goods and services through PayPal J.P. Morgan is sticking with Chase Pay, recently listing it as one of the technology investments where the bank expected "significant future benefits" "I would hope that you would expect as investors in this firm," Mr. Smith said at a conference after the Chase Pay announcement, "that we would be trying to lead that next phase of the industry"

Challenges and cons of vertical integration

Difficult strategy for companies to implement Often expensive and hard to reverse Don't get to specialize or economies of scale Less management attention -> inefficient Less familiar with the business so might buy too high or the wrong thing

Innovation is the __________________ of ideas and invention

commercialization

Founder's Mentality (video notes)

Bain has been looking at the issue of how companies grow sustainably for 40+ years On average, the leaders of Global 200 companies projected to outgrow market 2x (revenue) and profits (4x); 1/10 actually do this 90% of companies fail to achieve growth ambitions The management teams only cite markets for this about 15% of time (no attractive opportunities) Mainly cite internal things like organizational complexity (26%), culture (34%) like risk aversion, insufficient resources (45%), inability to focus (34%), weak business plans (34%), missing capabilities (23%), etc. Growth isn't simply how you compete in the market or drive to leadership... there's something that happens internally when companies grow to their success or failure In most companies, start as insurgents, but then default to incumbent as they grow (gain huge benefits of scale/scope but losing insurgent culture and founder's mentality) Benefits of scale and scope are very real, so from insurgency to incumbency might have perceived benefit because scale/scope benefits overwhelm cost of losing mentality but -> no original culture and scale/scope now complexity and no longer a benefit For 10x growth rate companies: - Time of heroes: large growth rates with little talent; fill talent gap; stories of people jumping into breach; eventually the heroes get over-extended and the desire of the original team is now need for professionalization - Unsustainable heroes -> flawed systems (trying to bring in professionals, add as much as possible very quickly) Problems Founders codify genius (asked to take their decision making and instinct that drove the business and somehow put create manuals or procedures for what they did; companies now attracted to people who want to work by the manual) Bring in big pros (recruits); big brand names, people who have run big companies, but these people have incumbent mindset; they've been administrators of large systems but they've never built the system; they're in charge of building supply chain but they expect existing one with 45 people Harmonize everything (desire to); gone from every comp and business decision being made by founder to now need procedures and systems; desire to harmonize -> stop thinking about talent and start thinking about systems over talent Recruit like an incumbent; think it's good that they're good, bureaucratic, and have systems; "come work with me because we are a winner and already safe" instead of recruiting like insurgent ("this will be wild ride") -> attract different group of people; first tier of talent (26 year olds) don't like company anymore; new talent likes procedures, harmonization, incumbency (the exact people you don't want; at some point have to get rid of them; company eventually realizes they need to get rid of them and talent cap worsens) Companies move from unscalable heroes to flawed systems; if you could skip that step and move right to a time of balance it'd be much better If you're in a time of flawed systems, you must unwind those if you expect to return to sense of insurgency How do you get heroes to walk halls again? How do you focus recruiting on black sheep from blue chips? Don't find great recruits from great brands who like to run incumbent organizations; find the great recruits from great brands who were stifling there, hated the bureaucracy and have insurgent mindset How do you use systems to support your heroes but never let your systems override the needs of your talent? Even if you get to scale and scope, some winds drive you down (south) Southward winds Curse of the matrix - Matrix is here to stay, the whole point of good organizational design is to create conflict because business is complex; want supply chain guy to try drive costs out of everything by making the proposition the same; want local market to fight for local market difference - Issue isn't the matrix... it's conflict resolution and the speed of conflict resolution - Has that led to such slow decision making that you're destroying the energy of your company? Fragmentation of the customer experience - As company's grow, aspects of what the customer sees and does with the company gets spread across the bureaucry and soon no one is accountable for your customer - Who's the king of your organization and the person completely accountable for delivering on the value proposition? Very often companies don't have any one person Complexity of doom loop - Growth creates complexity and complexity is the silent killer of growth - Your own growth is creating the complexity that will kill you and will make it almost impossible to have strategy discussions Death of the nobler mission - As you move from insurgency t incumbency, you lose that mission - Originally at war in industry on behalf of a dissatsifted customer and now you're an incumbent defending the industry, rules of the game, and your own economics and no longer defending nobler mission and your people realize it far before you do that the mission is gone Originally start simple with leader (CEO), customer, and front line and no clarity on the product you sell; clear relations Complexity doom loop: - Portfolio complexity (more markets, adjacencies, product lines, services) creates complexity; try to organize around (org complexity) - Organizational complexity: debates on how to organize best to capture adjacent opportunities and then people try to resolve them with what we'll do better with IT and info flows and create process comp - Process complexity, which creates dissonance within its own management team which is its own complexity A good day at the office is now "we're aligned" Complexity exhausts companies; decisions/conflicts not resolves; rise to energy vampire (people in org sucking life out of your talent/people by constantly blocking their action) -> exhausted leaders -> leaders forget to do the one thing they must do: simplify and try to deliver a simple strategy and plan of action but it takes massive energy to focus and be simple How do you get back to where the lines are simple? Steve Cook: "From Steve Jobs, I learned focus is key" Large multinational incumbent right now should be frightened because if insurgents can figure out how to go north and gain benefits of founder's mentality and scale then they'll be formidable competitors How incumbents can rediscover founder's mentality? Find what was great at the company in their early history, rediscovering elements of the insurgency and bringing them back in; companies thinking about their partners as a means of bringing back the founder's mentality Rather than bringing in a company and turning it into yourself, CEOs hesitating and realize if they acquire a founder-led company they can get mentality to influence them From insurgent to repeatable model; rediscover founder's mentality; restoration through partnerships

Working in the Clean Room (in-class video)

Cleaning room is where you're making the chips and everything happens Smaller/faster is better for semiconductor and less power consumption Extremely hygienic, air flows up and out so dust doesn't float onto wafer, requires white bunny suits

From the military, understanding what success looks like: Commander's _______________

intent

Marquee

Allowed clients to integrate high-value proprietary data and applications into their own systems, but retain the flexibility to make purchases with a competing firm Goldman's in-house data, analytic tools Goldman started offering clients access to it in 2013

Why did virtual integration allow Dell to evolve faster?

Capital: suppliers build factories and capabilities Headcount: fewer number of employees ... Asset-light: other people build factories/chips, do R&D, etc.

Better-off test for diversification

Does the corporation bring significant advantage to the new unit (or vice versa)? Is the benefit "one-time" or long-term

High economies of scale, low founder's mentality

Incumbents Lose some passion; no longer your story

Grove's leadership style

Meritocratic, results-driven management was unprecedented at the time but now the backbone of Silicon Valley

The Power of Virtual Integration: An Interview with Dell Computer's Michael Dell (reading notes)

Michael Dell created a $12 billion company in just 13 years He started with a simple business insight: he could bypass the dealer channel through which personal computers were then being sold, and instead sell directly to customers and build products to order In one swoop, Dell eliminated the reseller's markup and the costs and risks associated with carrying large inventories of finished goods The formula became known as the direct business model, and it gave Dell Computer Corporation a substantial cost advantage Created many benefits, such as customer relations, supplier relations, information, etc. The company is using technology and information to blur the traditional boundaries in the value chain among suppliers, manufacturers, and end users; in so doing, Dell Computer is evolving in a direction that Michael Dell calls virtual integration The individual pieces of the strategy (customer focus, supplier partnerships, mass customization, just-in-time manufacturing) may all be familiar But Michael Dell's insight into how to combine them is highly innovative: technology is enabling coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors Virtual integration harnesses the economic benefits of two very different business models It offers the advantages of a tightly coordinated supply chain that have traditionally come through vertical integration At the same time, it benefits from the focus and specialization that drive virtual corporations If you look back to the industry's inception, the founding companies essentially had to create all the components themselves (disk drives, memory chips, application software); - Build massive structures to produce everything a computer needed - Become an expert in a wide array of components, some of which had nothing to do with creating value for the customer - All the various pieces of the industry had to be vertically integrated within 1 firm As the industry grew, more specialized companies developed to produce specific components As a small start-up, Dell couldn't afford to create every piece of the value chain, but why should we want to? Concluded they'd be better off leveraging the investments others have made and focusing on delivering solutions and systems to customers It's a pretty simple strategy, but at the time it went against the dominant, "engineering-centric" view of the industry IBMs, Compaqs and HPs subscribed to a "we-have-to-develop-everything" view of the world; if you weren't doing component assembly, you weren't a real computer company Dominant model in the personal computer industry: suppliers -> manufacturers -> distribution channels -> customers Dell's direct model eliminates the time and cost of third party distribution: suppliers -> manufacturers -> customers Virtual integration works even faster by blurring the traditional boundaries and roles in the value chain: suppliers = manufacturer = customers The direct model has allowed Dell to leverage its relationships with both suppliers and customers to such an extent that its companies are virtually integrated; allows Dell to focus on where to add value and to build a much larger firm much more quickly "If we want to earn higher returns, shouldn't we be more selective and put our capital into activities where we can add value for our customers, not just into activities that need to get done?" "I don't think we could have created a $12 billion business in 13 years if we had tried to be vertically integrated" Leverage relationships with both suppliers & customers -> lets them focus on where to add value and to build a much larger firm much more quickly Can grow much faster without all physical assets because there are fewer things to manage, fewer things to go wrong Indirectly, Dell employs tens of thousands, but only a small number of them work for Dell; they're contracted with other firms, but vast majority of consumers think they work for Dell Differs from outsourcing, which in the IT world is almost always a way to get rid of a problem a company hasn't been able to solve itself; Dell instead focuses on how they can coordinate their activities to create the most value for customers With service providers, set quality measures and build data linkages to see in real time how they're doing (i.e. how long it takes to respond to a request for service) Might have excess demand one year and excess supply another When launching a new product, supplier engineers are stationed right in Dell's plants; if a customer calls in with a problem, Dell stops shipping product while fixing design flaws in real time Expect partnerships to last a long time, but regardless of how long relationships last, virtual integration means you're basically stitching together a business with partners that are treated as if they're inside the company; you're sharing information in a real-time fashion The rule we follow is to have as few partners as possible Tell suppliers exactly what Dell's daily production requirements are (would deal with internal supplier this way; share information and plans very freely) Technology enhances the economic incentives to collaborate The key challenge—and the biggest change from business as usual—is changing the focus from how much inventory there is to how fast it's moving "In our industry, if you can get people to think about how fast inventory is moving, then you create real value" Assets collect risks; with 70% of Dell's sales going to large corporate customers—accounts receivable isn't hard to manage because companies like Goldman Sachs and Microsoft and Oracle tend to be able to pay their bills In the computer industry, inventory can be a massive risk because if the cost of materials goes down 50% a year and you have two or three months of inventory versus 11 days, you've got a big cost disadvantage Inventory velocity is one of a handful of key performance measures watched closely; it focuses on working with our suppliers to keep reducing inventory and increasing speed With a supplier like Sony, which makes very good, reliable monitors, we figure there's no need for us to have any inventory at all Orders are typically for thousands of units, and they need to go to only one of three manufacturing centers: Austin, Ireland, and Malaysia (instead of unit by unit to thousands of outlets) "It's almost ideal from a supplier standpoint because we have real-time information on what the demand is, and all the supplier has to do is get the product to us" Dell builds to their customers' order, typically, with just five or six days of lead time, so suppliers don't have to worry about sell-through Dell only maintains a few days (even hours) of raw materials on hand and communicates inventory levels and replenishment needs regularly with vendors If you have a 90-day lag between the point of demand and the point of supply, you're going to have a lot of inefficiency in the process Substitute information for inventory and ship only when they have real demand from real end customers Dell doesn't have any customer that represents more than 1% to 2% of our revenues Customer strategy: Dell has become good at developing what they call "scalable" businesses—that is, those in which they can grow revenues faster than expenses They look closely at financial measures like gross margins by customer segment and focus on segments they can serve profitably as they achieve scale 90% of sales go to institutions—business or government—and 70% to very large customers that buy at least $1 million in PCs per year Segments by taking really big numbers and "de-averaging" them; looks inside and understand what's going on by business, by customer, and by geography Over time, Dell cut the market into finer and finer segments to identify unique opportunities and economics and to have better attention and focus. The finer the segmentation, the better able Dell is to forecast what its customers are going to need and when; Dell then coordinates the flow of that strategic information all the way back to its suppliers, effectively substituting information for inventory Segmenting lets you tailor your programs to the customers' needs Segmentation gets Dell closer to its customers and to understand their needs in a deep way -> access to information that's absolutely critical to their strategy -> helps forecast what customers are going to need and when -> keeps costs down If Dell's customers didn't work with us as partners, managing to 11 days of inventory would be insane Dell turns over their inventory over 30 times per year Help large global customers manage their total purchase of PCs by selling them a standard product; selling direct also allows them to keep track of the company's total PC purchases, country by country Created a massive network in their factory with high-speed, 100-megabit Ethernet, placing asset tags on computers Customer gets to save money and get value Boeing has 100,000 Dell PCs, and we have 30 people that live at Boeing, and if you look at the things we're doing for them or for other customers, we don't look like a supplier, we look more like Boeing's PC department Dell becomes intimately involved in planning Boeing's PC needs and the configuration of their network We've always visited clients, but now some of our accounts are large enough to justify a dedicated on-site team Free people up to solve more complicated problems They simply go to dell.com, enter some information about their system, and they have immediate access to the same information that we use at Dell to help customers Dell has developed customized intranet sites called Premier Pages for well over 200 of our largest global customers; used as an interactive catalog of all the configurations the company authorizes; employees then price and order the PC they want; employees happy to have choice and eliminates the paperwork and sales time normally associated with corporate purchasing -> frees Dell's salespeople to play a more consultative role Dell has set up a number of forums to ensure the free flow of information with the customer on a constant basis; Platinum Councils for largest; in these meetings, Dell's senior technologists share their views on where the technology is heading and lay out road maps of product plans over the next 2 years The ratio is about one Dell person to one customer; all of Dell's senior executives participate in these meetings with our largest customers; trying to help customers understand what the flow of new technology really means, how it will translate into specific products At every Platinum Council, we review what they told us last time and what we did about it Things that seemed fairly small at the time have turned out three or four years later to be the basis for billions of dollars of revenue Most of the managerial challenges at Dell Computer have to do with velocity (speeding the pace of every element of Dell's business) Life cycles in Dell's business are measured in months, not years, and if you don't move fast, you're out of the game; managing velocity is about managing information: using a constant flow of information to drive operating practices, from the performance measures tracked to working with suppliers Performance Metrics: at Dell, the balance sheet is used to track three cash-flow measures very closely; look at weekly updates of how many days of inventory they have, broken out by product component; then work closely with suppliers to end up with the right inventory; when it's not quite right, can use direct-sales model to steer customers toward comparable products that they do have Track and manage receivables and payables very tightly The real-time performance measures in the P&L that Dell regards as the best indicators of the company's health are their margins, average selling price, and the overhead associated with selling Working with Suppliers: greatest challenge in working with suppliers is getting them in sync with the fast pace Dell has to maintain The key is to making it work is information Take back the bad part to diagnose what went wrong, and feed that information back to suppliers so they can redesign the component Customers pay us for service and support, and we contract with third-party maintainers (TPMs) to make the service calls Customers call us when they have problems, and that initial call will trigger two electronic dispatches; 1 to ship the needed parts directly from Dell to the customers' sites and 1 to dispatch the TPMs to the customers Because poor quality creates friction in the system, which slows us down, we want to capture information that can be used to fix problems so they won't happen again -> take back the bad part to diagnose what went wrong, and we feed that info back to our suppliers so they can redesign the component Couldn't operate that way if we were dealing with hundreds of suppliers, so working with a handful of partners is one of the keys to improving quality—and therefore speed—in our system Big piece of our brand is being the most efficient and effective way for customers to buy Intel or Microsoft technologies; evolving into a technology selector, or navigator Often talk to customers about "relevant technology" Intel and Microsoft tend to launch into a massive variety of things, some of which are speculative and aimed at exploring new technologies; it's our job to help our customers sort out the technology relevant to today's needs from the bleeding edge At Dell, we believe the customer is in control, and our job is to take all the technology that's out there and apply it in a useful way to meet the customer's needs Not trying to invent new architecture ourselves, but we'll spend a quarter of a billion dollars this year and employ some 1,500 people to improve the whole user experience—that means delivering the latest relevant technology, making it easy to use, and keeping costs down Our R&D group focuses on process and quality improvements in manufacturing Increasingly, what matters is what the customers want and whether it works with all their other stuff We have to stay on top of our customers' needs, and we have to monitor and understand the innovations in the material science world—everything from semiconductors to polymers to liquid crystal displays You need to track anything having to do with the flow of electrons, and you need to keep asking how these marvelous developments might be useful to customers. The whole idea behind virtual integration is that it lets you meet customers' needs faster and more efficiently than any other model With vertical integration, you can be an efficient producer—as long as the world isn't changing very much; but virtual integration lets you be efficient and responsive to change at the same time—at least, that's what we're trying to do We think about Internet commerce as a logical extension of our direct model; all about is shrinking the time and the resources it takes to meet customers' needs which are changing May have to develop new capabilities rather quickly Our goal is to be one or two steps ahead of the change, and in fact to be creating or shaping it, to some extent Putting asset tags on computers isn't by itself a major value shift, but what happens is that we get a series of seemingly small innovations that over time add up to a huge improvement We don't come at it the other way around, with a consulting study that says, "That's an attractive business. Let's go." Nor do we sit around and say, "What do we suppose our customers would like? If we were customers, what would we be thinking?" Looking for value shifts is probably the most important dimension of leadership Then there's the question of managing such a tightly coordinated value chain—and there it's all about execution Can continue to keep our markup as low as it is today, we're going to be able to capture most of the opportunities available to us; means we cannot get complacent about our growth and get careless about execution Sometimes, I'm taken aback when I talk to people who've been in the company for six months or a year and who talk about "the model" as if it were an all-powerful being that will take care of everything It's scary because I know that nothing is ever 100% constant, and the last thing we should do is assume that we're always going to be doing well But for now, it's working The direct system really delivers value to the customer all the way from distribution back through manufacturing and design If you tried to divide Dell up into a manufacturer and a channel, you'd destroy the company's unique value; it's something completely new that nobody in our industry has ever done before

Why is it significant that core competencies bind existing businesses together and help capture new opportunities?

Prevents you from taking disastrous outsourcing decisions Knowledge fades when it is not used

T/F Dell used to only sell direct (fax, phone, online) and focus only on B2B and make-to-order

True Now they sell to consumers (i.e. Best Buy) and also build PCs in advance (built-to-stock)

T/F P&G prides itself in its organizational design

True, as emphasized by the Governance and Structure page on their website

T/F Google lists 70+ products on its website

True... 72 and there are surely more under development

Intel

Vertically integrated device manufacturer Makes the plants/chips Architect and builder Need good designs so electrons can move around and not get in traffic jam Needs to make sure each wafer is the same

Lagging and leading indicators

Examples of leading indicators might include number of employees hired/laid off, change in the level of investment in advertising, number of new customers Examples of lagging indicators include financial data, ratio analysis, cost per output Balanced scorecard has both

Intel: Not Good Enough (reading notes)

The booming market for cheap PCs took Intel by surprise; so did the convergence of computers and consumer electronics Intel: Santa Clara-based colossus whose chips power 90% of the world's personal computers Between Andy Grove, one of the firm's founders, vacating the chief executive's office to Craig Barrett, and with eagerly awaited first-quarter revenue figures expected to show a 10% drop over last year, Intel is in some danger of losing its momentum Intel is also suffering the time-consuming indignities of a full-scale antitrust investigation by the FTC Intel might have missed not one, but two "inflection points"—critical changes in the computer industry that Mr Grove himself argues must be identified and managed if companies are to be successful The points in question are the growing popularity of PCs that sell for less than $1,000, now nearly half the market, and the emerging mass market for so-called "convergence devices"—things like television set-top boxes that mix the technologies of the computer and consumer-electronics industries; in both cases, Intel allowed competitors to win business before it could respond Intel's entire business model is based on the premise of building ever faster and more powerful microprocessors; each year it produces a new processor that sets the standard for performance and commands a premium price Over time, often after only a few months, prices drop to generate volume, and the market (software companies, PC-makers and their customer) is prepared for the next "hottest-of-all-time" chip The idea that people might want to buy "good enough" computers has been hated by Intel The company's belated response to the popularity of the sub-$1,000 PC has been to cut the prices of its older Pentium processors almost in half; at the same time it has developed a stripped down version of its new Pentium II chip that does without the "cache memory" that is one of the keys to its superior performance The new chip for what Intel, with barely concealed disgust, refers to as "basic PCs" will be called Celeron—to ensure that the Pentium brand remains untarnished—and should become available later this month Although Intel claims that it can produce the Celeron at a price similar to chips offered by rivals like Cyrix and AMD without crimping its margins, most analysts are skeptical If cheap PCs were stimulating growth in volumes, a narrower margin might be all right... but they aren't; sales of basic PCs seem to be cannibalizing the market for mid-priced models The problem for Intel and for most PC manufacturers is that stocks are groaning; today's "good enough" computers really are good enough to run most applications For the moment, "processor-hungry" new applications such as speech recognition, digital imaging and video conferencing are failing to capture the imagination of enough mainstream buyers As for forthcoming operating systems, both Windows 98 and NT5 will chug along perfectly happily on current hardware Another frustration for Intel is the tardiness of the telephone companies in bringing into homes/small businesses the fat bandwidth that video-and graphics-rich websites require Given that the web is central to most of today's computer users, there is logic in delaying investment in new processor power until users have access to enough bandwidth to use it If anything, developments in the nascent market for TV set-top boxes are even more troubling for Intel, as these devices, which decode the signals for digital television and provide Internet access, are like pared-down PCs and are expected to sell in tens of millions; however, unlike PCs they seem likely to run a variety of different operating systems and processors Because the boxes are built to meet demanding consumer-electronics price points and are simpler than PCs, manufacturers like General Instrument (which supplies the boxes to cable television giant TCI) are fitting them with cheaper processors about half the size of chips based on Intel's x86 architecture Intel may be suffering from an unprecedented squeeze on margins at the low end of its business, and having difficulty coping with the dynamics of the consumer-electronics market, but it has an ace up its sleeve The fattest margins are to be found at the top end of the market, among the industrial-strength servers (costing up to $250,000) that companies like Sun Microsystems and Hewlett-Packard make; and that is where Intel is heading next. In 1999, the company will release the revolutionary 64-bit Merced processor that it has developed with Hewlett-Packard. At the end of 1997, Intel had a sizable share in basic PCs and entry servers, but hardly any among mid-range and high-end servers Although Merced will be up against Sun's Ultrasparc and DEC's Alpha, Intel's superchip promises performance advantages Significantly, Sun (one of Intel's fiercest rivals) has signed a technology-sharing agreement based on Merced and is adapting its Solaris version of the Unix operating system to run on it As far as Alpha is concerned, cards are being held tightly to chests Under a deal to settle a licence-infringement dispute with DEC, Intel agreed to take over Alpha's manufacture Now Compaq, soon to become DEC's owner, must decide whether to carry on; it would surprise few if it chose not to However, with the FTC investigation into Intel's business practices in full swing, Alpha's future is politically sensitive Unlike Microsoft, Intel has a clear idea of the obligations placed on a dominant firm and has a reasonable record of sticking at least to the letter of antitrust law. As long as Intel can grab enough of the market for processors that drive the most powerful workstations and servers, the margin squeeze it is suffering at the volume end of the business should be bearable Looking further ahead, much will depend on whether Craig Barrett can adapt Intel's business model and allow it to compete aggressively in cut-throat consumer markets Mr Barrett is the man who revamped Intel's production processes in the early 1980s, so the task should not be beyond him; more doubtful is whether, at 58, he can replicate Andy Grove's driving strategic vision Perhaps fortunately for Intel, Mr Grove, who is 61 and in remission from prostate cancer, has pledged to carry on supplying the ideas that Intel needs to make the industry (and thus its own business) grow

Transistor

1 intersection

PayTM

Crushing India Ant Financial took a 25% stake in PayTM (225M users) Tencent invested in HIKE, a PayTM competitor The Indian government cancelled 86% of currency in circulation in 2016, and PayTM filled the void

Frameworks for innovation

Disruptive innovation Business model innovation Technology adoption lifecycle Industry lifecycle ... Data is retrospective; frameworks consider future

As the industry lifecycle matures over decades, how has P&G's innovation evolved?

Early on, P&G did a lot of product innovation (i.e. different detergents) Industry has developed towards maturity phase Superbrand strategy around operational excellence innovation (making fewer products for cheaper and selling them everywhere)

PageRank

Evaluate the quality based on social proof (rest of web thinks page is good) Rating out of 10 (higher the better) Values .edu and .gov Google pioneered this effective way to index the web Google advanced the nature of search by creating a more effective way to index the web and generate the most relevant results

The Rise of the Superbrands (reading notes)

Every industry has its golden age, and the makers of packaged consumer goods enjoyed theirs around the middle of the 20th century In the 1950s and 1960s, companies such as General Mills, Unilever and P&G were delighting their customers with one innovative new product after another, from fluoride-enhanced toothpastes to fragrant fabric softeners & disposable nappies The industry's youthful vigour has ebbed away P&G has fought as heroically as any against the onset of middle-age lethargy Founded in Cincinnati in 1837 by William Procter and James Gamble Has boosted innovation, ditched losing brands, bought winning ones & stripped away some of the bureaucracy that has slowed its army of 110,000 "Proctoids" As P&G's share price has recaptured a little of its bounce Alan ("A.G.") Lafley, a dapper beauty-products specialist who became boss in June 2000, has grown bolder On January 28th, he announced P&G was buying Gillette—a maker of grooming products, batteries, and toothbrushes—for just over $50 billion Mr Lafley called the deal a "unique opportunity" and a "terrific fit" Gillette's boss, James Kilts (who will become a vice-chairman of the combined firm) said the merger would create "the potential for superior sustained growth" Warren Buffett, whose investment company, Berkshire Hathaway, owns nearly 10% of Gillette's shares praised the deal; called it a "dream deal" The combined company will be the biggest in its industry: it will have annual sales of more than $60 billion and a workforce that will top 140,000 The consumer-goods industry has found itself caught between slowing sales, rising costs and waning pricing power Over the past 5 years, the sales of the consumer-goods companies included in the S&P 500 index of big American companies have grown at a compound annual rate of just 4.7%; SG&A expenses have been rising by 5% a year Even with careful stewardship, the sales of mature brands tend to slip back towards their "natural" growth rate (population growth, plus inflation) Commodity prices have risen sharply, pushing up the cost of foodstuffs, chemicals, packaging & energy that go into making the industry's products There was a time when consumer-goods firms could pass rising costs on to their customers, but the spread of aggressive, big-box retail chains such as Wal-Mart, Carrefour and Costco has destroyed much of the industry's pricing power Retailers have begun plugging their own discounted, "private label" brands that compete with the pricier, higher-margin products from Unilever and P&G As retailers have grown in clout, they have squeezed the consumer-goods firms for more trade spending (in-store promotion, displays and eye-level shelf space) About 17% of the consumer-goods industry's sales disappear into trade spending Complexity of advertising, marketing & distributing branded consumer goods has further pushed up costs; P&G is the world's biggest advertiser, with a budget of ~ 3 billion last yr The audience for traditional media is fragmenting, making consumers harder and more expensive to reach -> "below-the-line" forms of marketing, such as in-store promotions, posters, coupons and sponsorship, are often more effective for consumer goods The purchase of Gillette follows 2 other big acquisitions since Mr Lafley took the top job at P&G: Clairol, a hair-dye company, and Wella, a German beauty firm Perhaps more vital to P&G's rejuvenation has been Lafley's willingness to end tired brands Consumer-goods firms find it hard to let go of older, slower-growing brands since they become established in the minds of customers who buy them without thinking (creating a good source of profits); but they eat up scarce management time and marketing talent on lines of business that are unlikely ever to grow much At P&G, Lafley has shed Punica (German juice brand), Sunny Delight, Jif, Crisco (pastry shortening), BIZ, Milton, Sanso, Rei and Oxydol (detergent brands) The combined effect of these sales and purchases has been two-fold - First, Mr Lafley has given P&G's portfolio of brands a sharper focus on beauty and grooming products, where he spots more potential for growth - Second, by reinvesting cash from sales back into its strongest brands, Lafley has bet more of the firm's resources on a smaller number of top "superbrands," which are contributing more and more to the company's overall sales In 2000, P&G owned ten brands each with annual sales of more than $1 billion; by 2004, it had 16 brands with sales over $1 billion; together these earned the firm $30 billion of its $51.4 billion of sales that year The purchase of Gillette, where Kilts has followed a similar strategy, adds 5 superbrands P&G has done really well consolidating its brands down to a strong core P&G hopes growing stable superbrands will help it weather the industry's tough environment Competition for the modern consumer's attention is ferocious; an astonishing 400-700 new brands are added every day to the 2.1m existing brands Superbrands should also help P&G focus R&D spending on the most promising products Like Gillette, P&G prides itself on its skill in adding incremental innovations to mature products, and then persuading customers to part with more money for them Over the years, King Gillette's safety razor has added more blades, a lubricating strip, a high-tech handle and (triumphantly, last year) an exorbitantly-priced battery-powered version featuring "micro-pulse technology". P&G has turned the humble floor mop into a "swiffer," an "all-in-one, ready-to-use mopping system" that features an "action sprayer," "premixed cleaning solution" and super-absorbent, triple-layer cleaning pads Together, the two firms hope to transform yet more mundane household goods into technology-rich marvels Since research suggests that the average supermarket shopper spends just a few seconds pondering each purchase and is unlikely to know the price of most items, P&G's and Gillette's push towards the frontiers of household-goods technology could prove profitable Another trumpeted benefit of the merger is the access Gillette will win to P&G's more evolved distribution network in developing countries, where the potential growth rate for the industry's products remains higher than in America, Europe or Japan As the world's fastest-growing big market for consumer-goods firms, China will be critical to the success of the merger, and P&G's long experience there should help it to push Gillette's lesser-known brands to the mainland's rising middle classes P&G has the best track record of any consumer-goods firm in China because it's learned what there and, importantly how much consumers are willing to pay for their slice of western convenience and style (still relatively little) I.e. P&G's Rejoice brand has won a 25-30% share of the Chinese shampoo market But Chinese consumers are wary of new products and prefer a trusted brand, so P&G is hoping to capture its share of growth by extending the Olay brand across a range of categories (i.e. whitening creams) rather than by introducing rivals P&G has also been quick to understand the importance of advertising on China's national television network -- long considered too expensive by other multinationals Unlike in the West, China Central Television (CCTV) still dominates the airwaves, and families all across China believe in it -> products sold on it tend to be trusted P&G was the first foreign company to take CCTV seriously P&G's sales in China have grown by 25% for 3 years straight to ~1.8 bill by the end of 2003; profits have risen by an average of 140% a year China was P&G's sixth-biggest market in 2003 and could eventually claim 2nd In Europe, the P&G/Gillette merger could trigger a takeovers or brand sales among rivals Europe's consumer-goods firms are already struggling with the strength of the euro and rising commodity prices; there is also increasing competition from supermarkets' own brands, which are taking more shelf space The 2 biggest European players, Unilever and L'Oréal, are looking less like giants Unilever (Dove, Surf, Hellman's, Axe) is Europe's biggest producer of consumer goods and has been struggling to get into better shape for several years; it has reduced its portfolio of brands but failed to meet its sales and profit targets With Gillette, P&G will almost be on par with Unilever in many areas outside Europe and America P&G is already Unilever's biggest rival in health and personal care, which represents almost half of Unilever's business As one, they stand a better chance of attacking Unilever's strengths Emerging and developing markets, such as India, have traditionally been the company's forte, but P&G has been catching up Brazil could be an early test of the contest to come Unilever controls ¼ of the Brazilian toothpaste market; P&G is hardly known, but Gillette has ⅓ of the toothbrush market; merged firm can combine its effort, perhaps to launch a joint brand of toothpaste in the Brazilian market For L'Oréal, which was founded in 1907, the merger could be good news... at least while P&G is distracted by making the deal work L'Oréal has faced fierce pressure from P&G in its core hair-care market History suggests that rivals will try to adjust to the new competitive landscape The jury is still out on whether firms focused on a few core brands will inevitably lose out to cross-category giants Advocates of size think a big company can leverage scale to cut costs, use these savings to invest more in advertising & innovation, and so gain even more scale There are also diseconomies of scale: giant firms can find it more difficult to move quickly, and their costs can balloon; mergers take long to complete Strong brands are arguably more important than scale Some of the most successful consumer-goods companies over the past decade have tried to become leaders in just a few product categories, relying on focus rather than scale Mr Lafley's latest deal is aimed at capturing the benefits of both scale and focus, creating a business that is both larger and more reliant on a smaller portfolio of stronger brands. Barring objections from American or European competition authorities, P&G should achieve this, but whether the new merged firm will then be able to rekindle the consumer-goods industry's dreams of youth remains to be seen

Narayana background

Founded by Dr. Shetty Original location in Bangalore, India; 500 inpatient beds 10 operating suites; 50 bed pediatric intensive unit Completed 11,200+ open heart surgeries (OHS) as of 2004 90 cardiac surgeons Focused on angioplasty and CABG (bypass surgery) Breakeven cost for open heart surgeries: $2,000 for adults, $2,900 for children vs. $5,500 in private Indian hospital Has a mix of paying and charity cases Quality on part with the US (1.27% mortality and 1% infection rate in CABG) Strong work ethic: doctors working 12-14 hour days Business activities: hospital, telemedicine, and insurance

Vertical integration

Merging together of two businesses that are at different stages of production 2 companies that do different things merging together to take more of the supply chain Doing multiple things and capturing more of the value

Khan Academy (reading notes)

Mission is to provide a free world-class education for anyone, anywhere Trying to become a world institution that acts as a catalyst for improving people's ability to engage in economic opportunity at scale worldwide, all while reimagining education and credentialing systems to be more personalized and meaningful Need to pick products, customer segments, and partners that achieve maximum impact; continue to improve product, technology, and marketing; mature people and operational processes to further our reach and prove effectiveness Online global education nonprofit founded in 2006 Initially best known for its thousands of "folksy" videos, created by Sal Khan himself, that made complex academic topics like math easy to understand By 2018, Khan Academy had expanded into many content areas and product lines: 40+ class subjects, tutorials and practice problems for all grade levels from Pre-K through college, standardized test prep tools, and life planning tools Over 15 million users from 190 countries visited the Khan Academy site each month Novel approach to education had generated significant publicity/interest from the start Focus on self-paced, individualized learning, emphasizing mastery of concepts As it entered its next phase of development, it had to attract substantial financial resources; recruit and retain great people; uphold high standards for quality; scale its operational processes, product, and platform; and demonstrate measurable impact Under the leadership of Ginny Lee, a seasoned executive who had joined Khan in 2016 from Intuit, the organization had undertaken a comprehensive 1-year and 3-year strategic planning process to help prioritize efforts in terms of reach, product, and financial sustainability T The plan acknowledged that to have a scalable impact on educational outcomes, Khan Academy needed to renew and expand its work within the existing, slow-to-change education system Wanted to stay true to the principle of educating the world for hundreds of years As viewership continued to expand rapidly, Khan incorporated Khan Academy as a 501(c)(3) nonprofit in 2008, a decision questioned by others, but clear to Khan Many underlying reasons why the U.S. educational system operates below its potential Too often, students failed to acquire fundamental knowledge, critical thinking skills, creativity, confidence, and a passion for learning Many students were denied access to school completely or dropped out of school prematurely. Many were ill-prepared to be productive and engaged citizens There was enormous inequity across race, gender, class, religious and national boundaries The individual and collective consequences were dire Most students in public schools were grouped by age cohort and taught a common curriculum from first grade to twelfth grade; all students moved inexorably forward to more challenging topics as time passed Expensive yet mediocre outcomes Uniformity and limited innovation in curriculum and teaching methods A historical challenge in public education related to the funding model: Typically, in the U.S., the money for public K-12 education came from local property taxes, supplemented by state taxes; inequity in funding between wealthier and poorer districts in most states Often, children in poorer districts had nearby schools that were underperforming Wide variation in the quality of schools and school outcomes, even within similar socio-economic communities In the U.S. and many other countries, every child was required to attend school until age 16 or so; however, basic access to education presented a global challenge in other parts of the world Mission to offer a free, world-class education for anyone, anywhere Aspired to enable everyone around the world to master every K-12 and early college core subject, either independently, or in conjunction with a teacher and classroom Seeks to enable teachers to make their classrooms more interactive, personalized, and mastery-based with interactive content and software Over the longer term, Khan Academy envisionx offering an entirely new type of credential that provided a more robust and credible alternative to the standard high school or college diploma Access to over 10,000 educational videos and 150,000 standards-aligned practice exercises for learners to deepen and test their knowledge Anyone in the world with a computing device and web access could use the site In some regions, students could get a non-web based version of the content (e.g., from a local server or other storage device) Enables teachers to set up their classes on the platform and use exercises, articles, and videos to support their teaching While perhaps still best known for its K-12 math content, by 2018 it covered a wide variety of subjects While the organization had many in-house content creators, Sal Khan remained the organization's chief academic officer, and still spent an estimated 30% of his time recording videos and playing a key content editorial role In 2014, Khan Academy announced a partnership with the College Board that made Khan Academy the official free test prep provider for the SAT In the early days of Khan Academy, the organization piloted a close partnership with the Los Altos, California school district in which the district used Khan Academy materials as a core component of the curriculum; while the pilot was successful, the model was not easily scalable given the resources required With worldwide users, the organization faced challenges with translation and platform compatibility (mobile vs. desktop) Khan Academy worked with education experts in each of its priority countries to map the content on the site to the specific grade level curricular standards of each country Khan Academy depended heavily on philanthropic donations As of February 2018, Khan Academy had 180 employees across 8 functional areas Possibly create a for-profit arm that has stock options so that we can better compete in Silicon Valley for top talent Khan Academy had to do fewer things well in order to have a measurable impact, to see what was working, and to build on those areas more effectively Monthly very active learners (MVALs): used the KA site for 120+ minutes per month

Sandlands Vineyards (reading notes)

Owned by Tegan Passalacqua and his wife Olivia, Sandlands Vineyard (a small winery producing "old-vine" wines) and Kirschenmann Vineyard operate out of Lodi, California Although he had a full-time job as the head winemaker at Turley Wine Cellars, he managed the Kirschenmann Vineyard and made the Sandlands wines in his spare time using Turley's facilities Should they buy a building down the road from the Kirschenmann and develop it into a winery and possibly a tasting room for the Sandlands wines at a cost of up to $500,000? Eastside Meats: a meat processing facility not listed for sale, but Passalacqua had been in negotiations with the owner who seemed willing to sell Limited resources can be saved and used to buy another vineyard, which do not come up for sale very often and sell at higher and higher prices Knowing they could afford to make only one major investment over the next five years, they had to decide whether to bid for the building or save their resources for another vineyard For a long time, wines came only three primary colors (red, white, and rose) and three main types: still (table wine), sparkling (with bubbles), and dessert (often sweeter and with higher alcohol levels) Thousands of kinds of grapes and 150+ kinds were regularly used to make wine, but 10 varieties accounted for 80% of the tons crushed in California People also drank wine by itself or paired with food to enhance the taste To help consumers make an initial purchase decision, professional wine critics reviewed and rated wines particularly more expensive ones Wine taste derived from a complex combination of the grape, climate, weather, soil, and winemaking process Winemakers described the taste using six characteristics: acidity, tannin, alcohol, sweetness, fruit, and body (fullness) A balanced wine was one in which all of these characteristics blended together harmoniously rather than having one of them stand out above the others Taste was a very subjective factor that could vary considerably from person to person; it was an "experience good," a product you had to try before you could decide if you liked it or not While some argued critics provided objective assessments of wine quality, an assertion the strong positive correlation b/w ratings and bottle prices seemed to corroborate, others argued they had strong and almost predictable preferences that drove winemakers to produce wines with specific taste characteristics The standard unit of measurement in the wine industry was a (9-liter) "case" Total sales in the U.S. wine industry in 2016 were 399 million cases with a retail value of $60 billion; approximately 70% of the wine consumed in the U.S. was produced domestically and 90% of that was produced in California Lodi had 85 of wineries The beverage market was divided into non-alcoholic (soft drinks, fruit juices, coffee, water, etc.) and alcoholic beverages Smaller market for alcoholic beverages included beer (50% of total dollar sales); distilled spirits including rum, vodka, and gin (35%); and wine (15%) Among adults of legal drinking age, 36% abstained from drinking alcohol, 24% drank alcohol but not wine, and 40% drank wine Approximately two thirds of the wine drinkers drank wine occasionally (less than once per week) and one third drank wine more frequently Exhibit 1: according to one industry survey, there were 6 key customer types ranging from "overwhelmed" customers who bought cheaper wines to "enthusiastic" customers who bought more expensive wines Exhibit 2: when surveyed, frequent wine drinkers listed price and brand as by far the most important purchasing criteria Most consumers viewed price as a signal of quality, which was particularly important given the enormous range of options available, but there was no correlation between price and taste Wine product segments (by price): the value segment for wine costing less than $10 per bottle and the premium segment for wine costing more than $10 The value segment represented approximately 80% of the industry volume and 60% of its revenues Marketing analysts further divided the premium segment into "luxury" wines costing more than $50 per bottle Marketers classified premium wines as "non-essential luxury goods," meaning consumers could defer purchases indefinitely ("non-essential") and tended to buy proportionally more of them as their income rose ("luxury good") Over 40% of adults had purchased a wine costing more than $50 per bottle, and the most common reason was to celebrate a special occasion; second and third most common reasons were to drink or to give as a gift When purchased to drink, premium wines competed against other kinds of wine; when purchased for a special occasion or as a gift, they competed again other kinds of wine such as champagne, food such as chocolates, and gifts such as flowers Sandlands testimonial: not mainstream, but the serious wine lovers will be interested Producing wine consists of three main activities: growing grapes (sourcing), making wine (production), and distributing wine (distribution) Value or commodity segment relied more on "science" and automation to mass produce consistent and affordable (low-cost) wine The premium segment relied on a complex combination of art, science, and nature to produce more unique, higher quality wines In both segments, however, the production, distribution, and sale of wine was regulated extensively and taxed heavily at both the federal and state levels When growing grapes, farmers made a series of critical decisions such as what to grow (which type of grape); how to farm (plant, prune, and harvest the grapes); whether to irrigate or "dry farm;" and whether to use pesticides or grow organically In the value segment, the objective was maximum yield with decent quality and low cost; in the premium segment, by contrast, there was considerably more variation in farming techniques and a desire to grow high-quality grapes Premium winemakers sought a match between the type of grape, the climate, and the "terroir" (soil or earth); all 3 of which affected the ultimate wine's taste The most critical decision in any given year was when to pick the grapes Wineries sourced grapes in three ways: - Own or lease the vineyards (an "estate" or integrated winery) which gave winemakers full control over growing practices and harvesting decisions The largest wine makers used a combination of all three structures; the smaller, premium winemakers tended to buy grapes - Buy grapes on the spot market or with longer-term contract - Buy wine made by others and resell it under a proprietary brand name One of the greatest challenges for growers was dealing with diseases and pests As of 2016, there were 5,900 wine grape growers in California who farmed just over 600,000 acres Vines became productive three years after planting, remained productive for 20 to 40 years, and then were replaced as output fell An acre of land produced from 2 to 10 tons of grapes, with high-quality wines at the lower end and low-quality wines at the upper end The challenge for all growers was the high and rising cost of land: vineyards ranged from $20,000 to $40,000 per acre in San Joaquin Valley and from $50,000 to $370,000 per acre in Napa Valley Restrictive zoning and strict environmental regulations meant new land was difficult and costly to acquire Rising land prices, however, helped offset the low operating margins most growers earned on their grapes—averaging 9% despite considerable variation over time and across growers Growers with the most prized vineyards, which produced the most expensive wines, could earn higher operating margins, perhaps 20 to 40% or more, but they were relatively rare and few growers disclosed their profitability Most wineries had a head winemaker who ran the process of transforming grapes into wine, a process that involved four key steps: 1) pressing the grapes, 2) fermenting the juice, 3) aging the wine, and 4) bottling the wine for distribution One of the most important decisions was how much to intervene in the process As of 2017, there were 9,000+ wineries in the US, and 4,000+ in California alone Consolidation at the top end had occurred steadily over the past 20 years and was likely to continue in the coming years Most of the entry and growth was occurring in the premium segment in a trend known as "premiumization" Although larger wineries had profit as a primary objective, the owners of smaller, premium wineries were interested in some combination of profit, prestige, and fun Many celebs and business executives owned wineries as part-time endeavors Starting a winery was daunting endeavor because of the large capital commitment Small wineries lost money on average according to a survey of actual financial results Producers distribute wine in one of three ways: via distributors (90% of total sales), direct-to-retailers (3%), and direct-to-consumers (7%) Selling to a distributor (a wholesaler) simplified the process and reduced selling expenses, but resulted in lower prices Selling direct-to-consumers through tasting rooms, wine clubs, or wine lists (customers who requested annual allocations of wine) generated higher margins, but required incremental marketing, sales, and overhead expenditures Smaller wineries found it difficult to get marketing support from the larger distributors Consolidation was happening in the retail end of the market; Costco had become the largest wine retailer in the U.S After taking night courses in viticulture (growing grapes) and enology (wine making) and working in New Zealand, he landed a job at Turley Wine Cellars in 2003, which produces premium and luxury wines Over time, Larry Turley (the founder) gave Passalacqua more and more responsibility, allowed him to take part-time jobs in France and South Africa to learn more about winemaking, and eventually made him the Director of Winemaking in 2013 At Turley, Passalacqua was responsible for making 34 different wines from 50 different vineyards spread across central and northern California Most of Turley's grapes came from organic, "old vine" vineyards Gnarled, old vines produce wines with more unique and more balanced flavors; 50+ years old; deeper roots "As a winemaker, you want your fingerprint to be on the wine, not your footprint; over time, the wines should be recognizable, but they should not the same" Passalacqua's experience at Turley—roaming the Californian countryside, finding forgotten vineyards, building relationships with growers, harvesting old-vine grapes, and making old-vine wines—inspired him to buy an old-vine vineyard—the 20-acre Kirschenmann Vineyard which he and his wife Olivia did in 2012, despite not owning a house at the time Old vines had significantly lower yields (1 to 2 tons per acre), cost considerably more to grow and harvest because they were not suited for modern farming equipment, and tended to be "forgotten" varieties from yesteryear Growers were replacing their old vines in favor of more popular and more productive varieties such as Chardonnay and Cabernet Sauvignon leaving a declining number of old vine vineyards and fewer old vines within those vineyards as the vines died As his interest in old vine wines grew, Passalacqua decided to start his own winery with, of course, the approval of his friend and employer, Larry Turley, and an agreement to limit his production He made his first wines—a Syrah and a Mataro—in 2009 using Turley's facilities and equipment Passalacqua released his first batch of wines for sale in 2014 Over the next few years, he continued to experiment with different vineyards and grape varieties as a way to learn Passalacqua distributed 75% of his wine to customers directly and 25% through two distributors located in the largest wine markets (California and New York) and third one in Colorado "Although I could allocate 100% of my wine to customer directly, I sell 25% to distributors at a 50% discount [to the retail price]. Yeah, that hurts the economics, but I view it as a marketing expense. Distributors have access to influential people—sommeliers and wine buyers—and other customers that I could never reach on my own. I just don't have the time given my day job or the access given my size to reach the people I want to reach." "I think our edge is that we work with small, old-vine vineyards throughout the state that most larger companies do not want to deal with because of the quantity or lack thereof" Make great wines in other places Towards that end, Passalacqua used different grapes (the "forgotten classics" from old vines), different farming methods (own rooted, dry-farmed, and head-trained vines grown organically rather than grafted, irrigated, and trellised vines grown with pesticides), and almost no intervention in the winemaking process The key, he said, was having good relationships with the grower Finally, with regard to the price, Passalacqua knew he wanted to make affordable wines that his friends could drink: targeting a retail price of $24 to $28 per bottle Despite selling at this price, there was an active and growing secondary market for Sandlands wines; two Sandlands Carignanes from 2015 were selling at prices ranging from $39 to $79 Eastside Meats building can unite Kirschenmann Vineyard and the Sandlands winery "This building fits with everything I do and believe in. It has a link to the past and is an opportunity to make wine in an underappreciated place"

1950s hierarchy

Product focused Brand manager ... New appliances and higher standard of living brought about by innovative products

Google Founder's Letter (2018)

Sundar Pichai CEO in 2015 After 20+ years, Google remains a company where anything can happen Larry and Sergey say a "Healthy disregard for the impossible" is still what gets Google out of bed every morning & why they love pushing technological boundaries to solve even the toughest user problems Mission to organize the world's information and make it universally accessible and useful is as relevant as it was in 1998; since then, Google has evolved from a company that helps people find answers to a company that helps you get things done Now focused on building an even more helpful Google for everyone; aspire to give everyone the tools they need to increase their knowledge, health, happiness, & success Many users turn to Google for daily tasks -> opportunities to help in big/small moments Products designed to save you time in ways that add up over the course of a day YouTube is one of its most helpful products; has become one of the world's most accessible educational platforms & made it possible to learn anything from anywhere Beyond saving you time or helping you learn new skills, Google wants to help you connect with the people and things you love Some happy moments come when you're not looking at a screen or holding a device -> working to help you disconnect from tech when you want; Digital Wellbeing features like WindDown help you switch off at night; FamilyLink helps manage your kids' screen time Quest for knowledge has been at the core of Google's mission since the very beginning Even after 20+ years there's room to grow and improve Search -> continue to evolve Search by applying the most advanced technology to the most urgent problems (i.e.providing a flood victim real-time information in a crisis, or connecting a returning service member or veteran with a job) 15% of the queries Google sees every day they've never seen before By bringing augmented reality directly into Search, Google can now show, not just tell In March 2018, Google launched the Google News Initiative, committing $300 million to help journalism thrive globally in the digital age Major focus has been supporting local journalism, which plays an important role in our communities, our democracy, and our daily lives Launched the Local Experiments Project to test new approaches in local business models to help the industry learn what works Helped train 100,000 journalists worldwide to use digital tools, & have partnered with multiple newsrooms worldwide to combat misinformation during elections On YouTube, Google's teams feel a deep responsibility to curb misinformation, keep children safe, and remove harmful content that violates their policies Removing hate speech is a hard comp sci problem & societal problem as the line on what's considered acceptable moves over time & varies across cultures Problematic or borderline content on YouTube accounts for less than 1% of the consumption on the platform; vast majority of videos do what's been intended: give people a voice & a chance to share their viewpoints, stories, and expertise Continue to stay vigilant to protect platforms from election interference Increased transparency about news sources on YouTube, adding labels under videos uploaded by broadcasters that receive public or government funding Added a verification process and required disclosures for election ads and launched an election ad transparency report Continue to detect and disable efforts during important elections Protecting users and preserving the integrity of Google platforms remains top priority Access to high-quality information is crucial not just to an individual's success, but to the success of people and businesses all over the world One way Google is building for everyone is by focusing on the next billion users coming online in places such as India, Brazil, and Nigeria; adapting core products such as Search, YouTube, and Lens to make sure they work on phones as affordable as $35 Developing brand new solutions designed for the next generation of users, whether it's helping them to access banking or to ask and find answers to neighborhood questions Tailor-made products are often adopted later by users globally; for example, Maps Offline & Tez (now Google Pay) were built for India and are now used around the world Building for everyone includes people with disabilities; introduced several products with new tools and accessibility features, including Live Caption Live Relay & Euphonia will help people who have trouble communicating verbally Building with goal of helping businesses apply Google's most advanced technologies to their most important problems; using AI to help ships navigate safely, connecting offline & online retail with personalized experiences, using machine learning to detect fraud Google Cloud is one of the largest areas of investment for Google "For everyone" is a core philosophy for Google Just as it's built into their mission to create universally accessible and useful products, Google believes privacy & security should be equally available to everyone in the world Give everyone clear, meaningful choices around their data Long offered features such as Google Takeout (now Download Your Data) so that anyone can take their data with them to whatever service they choose Recently announced significant new privacy features, such as one-click access to privacy settings and auto-delete controls that allow you to choose how long you want data to be saved; to protect your data from security threats, just introduced a security key built into Android phones that can provide two-factor authentication Challenging the notion that products need more data to be helpful New technique invented at Google called federated learning lets them train AI models and make products smarter without raw data ever leaving your device With federated learning, Gboard can learn new words after thousands of people start using them, without them ever knowing what you're typing In the future, AI will provide more ways to make products more helpful with less data Making significant long-term investments in the communities they call home 1) Helping to generate economic activity: - In 2018, tools helped create $335 billion in economic activity for millions of businesses, website publishers, and nonprofits in the U.S. alone - Globally, services are enabling a new generation of small businesses, app developers, and YouTube creators to reach new audiences and generate billions more in economic value 2) Grow with Google: global effort to help people learn new digital skills, launch careers, and grow their businesses - Want to extend technology's reach and make sure new opportunities are available to people in every part of the world - Have already trained more than 43 million people in digital skills globally, and expect that number will rise to more than 60 million by 2022. 3) Google is deepening its commitment - Investing $13 billion in the US in expanding its data centers and offices across the country; currently growing faster outside of California than in it, but, to make sure home base in San Francisco Bay Area remains a great place to live and work, making a $1 billion investment in Bay Area housing - 15,000 new homes to be offered at all income levels; $250 million investment fund that will enable developers to build at least 5,000 affordable housing units across the market; give $50 million to non-profits focused on the issues of homelessness and displacement - 1st organization of its size to achieve 100% renewable energy 2 yrs in a row; data centers 7x more energy efficient than 5 years ago; committed to long-term sustainable practices Timeless mission with an evolving approach: each phase change has been the result of careful, long-term planning that began by placing big bets in areas Google believed would pay big dividends for society 5-20 years down the road (i.e. early bet on AI) Started scaling up neural networks big enough to start to be really practical in 2012 Tensor processing units (TPUs) are Google's custom-built hardware for machine learning; allow them to run machine learning algorithms faster and more efficiently Early investments put Google in a strong position to shift the company to an AI-first strategy, and they have pursued that rigorously across products to better serve users One of our clearest insights on AI so far is that its potential is greatest when paired with human intelligence (i.e. pathologists using Google algorithms in breast cancer detection) Believes they can develop AI in a way that complements human expertise Announced 7 principles last year to guide their work in AI; concrete standards that actively govern their research/product development & impact business decision By making AI technologies widely available via tools & open-source code, Google works to empower other organizations who are using technology to improve people's lives High potential of quantum computing and the world-class team working on it Alphabet improving lives through technology, whether it's game-changing approach to health care, vision of future transportation, expanding internet access to more people in more places, or helping the next gen of successful companies access resources/expertise Collaboration - while remaining focused, independent companies - is what Larry, Sergey, and Sundar envisioned when Alphabet was created a few years ago; shared belief that technology should be developed to serve humanity Still face hard problems (some more complex than ever), but will continue to approach them by staying focused on users & creating products that improve their lives/society as a whole; will continue to create value for customers, partners, and shareholders "As long as we're building tech to help you reach your full potential, anything's possible"

Pre-requisites for unlocking value and making 1+1=3?

1) Portfolio management 2) Restructuring 3) Transferring skill 4) Sharing activities

Narayana discussion

Moore's law flipped around: the more tech you have, the more expensive it gets Mission to subsidize and charity Manage income statement on a daily basis Dr. Shetty vital to success Operational efficiency

Metcalfe's Law

Network value is proportional to square number of connected users Peer-to-peer I.e. Facebook Can gauge value by users

P&G today

P&G stock price fluctuated between $60-90 per share between 2012 and 2018 FY 2019 results looking good There are now 7 categories (not 5), and organic sales are up significantly From 170 brands to 65; from 16 categories to 10 Has started to de-matrix the organization (simplifying it) Same 3-part (BUs, markets, corporate services)

Requires new business model, requires new technical competencies (innovation landscape map)

Personalized medicine for pharmaceutical companies Digital imaging for Polaroid and Kodak Internet search for newspapers

To be sustainable, core competencies should be

Scarce, relevant and durable

Low economies of scale, low founder's mentality

Struggling bureaucracies Lazy, complacent

T/F GE uses "best practices" to be more operational efficient with mergers

True

T/F Intel captured temporary monopoly profits with first-to-market, powerful Pentium chips then rapidly cannibalized own market with new products (before competition could copy)

True

Second inflection point

With the 386 chip, Intel stopped licensing and became the sole source of manufacturing Used to only do architecture and not build chips themselves Realized most value is captured by actually selling themselves Went from asset light strategy of licensing to integrated device manufacturer (make chips themselves) Very risky because used to only design and now say they can vertically integrate and do better than everyone; also expensive; will get more control

Forms of M&A

Acquisition, "carve out" a part of the business Public, private ownership

Exercise: Your friend comes to you with a new business idea, a healthcare navigation app; what are some of the questions you could ask to determine the business model?

Balance sheet: - Who are your target customers? B2B (payers, providers) vs. B2C - What problem are you solving? - How will you monetize, make money? - What is the ongoing expense? Income statement: - What one-time investment is needed? (R&D) - What's the capital structure (A=L+E)

Business model (video)

Business model and strategy are among the most sloppily used terms in business, but they're separate concepts with enormous practical value; fundamental to success -> no organization can afford fuzzy thinking The term business model emerged when personal computers and spreadsheets became common Managers could use these tools to run the numbers to see models of how various decisions might affect the bottom line A new business model might hinge on either a different way to make something or a different way to sell something I.e. discount retailers like Kmart and Walmart are pioneers who applied supermarket logic to the conventional department store and developed a discount retail model which involved slashing costs by eliminating chandeliers, carpets, and personal service in exchange for lower prices While business model is a description of how your business runs a competitive strategy explains how you will do better than your rivals I.e. part of Walmart's unique strategy was to prioritize rural customers; in founder Sam Walton's own words, he "put good-sized stores into little one-horse towns which everybody else was ignoring" and it worked" Focusing on rural areas let Walmart buy land for cheap, target customers no one else was going after, and pre-empt other markets from entering the market in those areas Walmart's customer strategy thus reinforced other parts of their competitive strategy In contrast, Kmart tried to appeal to everyone -- and that's not a distinctive strategy While Kmart may have a good business model, without a clear strategy they've struggled to stay competitive To get ahead of your rivals, you not only need a good business model and a clear strategy, you also need a clear understanding of the difference between the two

Innovation landscape map (2x2 matrix)

Business model innovation When creating an innovation strategy, companies have a choice about how much to focus on technological innovation and how much to invest in business model innovation This matrix, which considers how a potential innovation fits with a company's business model and technical capabilities, can assist with that decision X: Leverages existing technical competencies or requires new technical competencies Y: Requires new business model or leverages existing business model Can look at new/old tech and business model (how you make money)

China digital payment facts

China's payment industry is $11T, expected to be $40T by 2021 In China, there are some tailwinds for mobile payments - Many retailers lack the point of sale (POS) machines - Many consumers don't have credit and debit cards - AliPay and TenPay directly access the bank cut out all the middlemen), unlike the US, which go through a payment processor (Visa, MC) - Supportive ecosystem Utilities require digital payments Alibaba (AliPay) launched with a large captive audience of buyers and sellers who use aLIBABA - Money market fund has $166B (2017) with $5B in loans Tencent's WeChat "never-have-to-leave" environment

Shareholders can readily diversify

Don't need GE to diversify across trains, engines, and oil because shareholders can do it on their own As of June (2016) there 1,929 ETFs (Blackrock, Vanguard, etc.), with 284 of them coming to market over the preceding 12 months Those numbers seem pretty large and, frankly, we're concerned that they indicate product development run amok; investors can no longer assume ETFs are low-cost, broad-based, cap-weighted index funds However those numbers pale in comparison with the many thousands of mutual funds available

Looking at P&G's European division grouping in 1956, who has the most influence (product, function, or geography)?

Geographic-based

Superbrand (and pros/cons)

Important/promising products; focus on them (R&D, sales) Idea that P&G tries to sell the same product to more people (i.e. want to sell 5 kinds of detergent everywhere in the world not 10) Benefits: more focused (on more profitable kinds -> economies of scale), more strategic/disciplined (must place bets), forces strategy rigor, less likely to cannibalize yourself Disadvantages: rigid, hard to be dynamic, integration takes time

What is WeWork?

Lease office space Target people who don't want to sign a long-term lease

Frugal Innovation in Healthcare (in-class video)

Of the 2 million people who need heart operations in India annually, only 5% will get them Frugal innovation to help fix this Busy Western hospitals do 2-3 heart surgeries on children a day; Narayana does 10-15 Cost as little as 3% of those carried in Western Large number of operations utilizes infrastructure to full extent 12-16 hours a day; 6 days a week Long hours maximize efficiency Taken to get ready as previous patient still finishing 22 operating theaters with seamless work Dr. Shetty consults without even leaving office to minimize unnecessary and costly hospital visits Within 10 years, doctor might treat patient from their respective homes

Requires new business model, leverages existing technical competencies (innovation landscape map)

Open source software for software companies Video on demand for DVD rental services Ride-sharing services for taxi and limo services

P&G evolution

Product/innovation focused in the US and market focused in Europe (1950s) More globalized and managed by category to not cannibalize own sales (1980s) Superbrand focused, selling fewer and fewer products to more people (2019)

T/F Intel is an icon of the Silicon Valley; in 2000, was the most valuable company in the world

True

P&G Divisional Grouping (US 1956)

US President - Foods VP, Toilet Goods VP, Soaps & Detergents VP, Basic Research, Corp Functions -- Foods R&D, Foods Brand Manager, Foods Procure & Manufacture, Foods Sales; Toilet R&D, Toilet Brand Manager

Clayton Christensen's disruptive innovation

Coined the term "disruptive innovation" Low cost solution for the lower-end customers that incumbents are overlooking Initially, performance is inferior, but the rate of improvement is faster than incumbents Less for less (good enough) Examples: South Korean car manufacturers (1980s) Coursera, Udacity, EDX (Massively Open Online Courses), MOOCS

Cash May Be King in India, but Google Is Prince of Mobile Payments

The leading player in the battle for mobile payments in India isn't either of China's pioneers, Alibaba or Tencent It isn't Apple Inc., Visa Inc. or even PayPal It's Google Has for years tried to diversify its revenues beyond advertising by pushing into new fields like cloud computing and hardware While its profits remain healthy, it needs new ways to make money as the specter of regulation looms at home and around the globe Its booming new business in the world's largest untapped digital market could be the engine of expansion that it has been looking for In India today, the company has one of its fastest-growing hits ever with Google Pay, a two-year-old app that millions of consumers are using to spend and transfer tens of billions of dollars Resembling a chat app and available in local languages, Google Pay was the most downloaded financial technology app world-wide last year Indian consumers use it to buy train tickets, pay bills and even to purchase lunchtime meals from street vendors Tiny mom-and-pop shops around the country now display a logo with a large "G" and Google's blue, red, yellow and green colors, signaling that merchants accept payments via the app, which is free for all to use "There's good reason for Google being bullish," said Satish Meena, a New Delhi-based analyst with research firm Forrester. "They're getting good traction. The opportunity in India is massive." The app has been downloaded more than 180 million times since it launched in September 2017 and in the first half of this year, it clocked more downloads world-wide than PayPal or its Venmo app "India is setting the global standard on how to digitize payments," Caesar Sengupta, Google's vice president for its Next Billion Users initiative and payments, said Thursday at an event in New Delhi In the past year, the service has processed transactions worth more than $110 billion on an annualized basis via the government's popular real-time payments platform, he said Analysts estimate Google Pay is now used as much as or more than any other service, including apps backed by Tencent and Paytm, which counts among its investors Warren Buffett's Berkshire Hathaway Inc., SoftBank Group Corp. and Alibaba Google offers other payment systems branded Google Pay around the world, but Google Pay in India is the only service of its kind offering real-time payments without the use of credit or debit cards between individuals and businesses Shop owners can display a printed QR code for shoppers to scan, or two individuals can open the app, hold their phones together and use audio pairing to connect and make payments Hundreds of millions of Indians are entering the digital economy for the first time thanks to inexpensive mobile data and smartphones Cash still rules, but most Indians have bank accounts and for simple payments they are skipping plastic and going straight to mobile The catalyst for mobile-payment growth came in 2016, when India's government nullified the largest-denomination cash notes in circulation to curb corruption That triggered a crunch and consumers had to stand in long lines for ATMs Many downloaded mobile wallets like Paytm's, learned more about digital payments and became comfortable making them Google, sensing an opportunity to get a digital payments foothold in the country of 1.3 billion, has used its massive war chest to capture users with an advertising blitz and cash awards The value of mobile payments in India is well behind China's, but is ahead of the U.S. The value of mobile payments could nearly double to hit $450 billion a year by 2023, according to a 2018 report from Morgan Stanley, with Google wringing as much as $4.5 billion annually out of the business should it introduce advertising or other new services Google has an early lead but isn't without challenges The biggest one on the horizon is Facebook's WhatsApp The platform has 400 million users in India, more than any other country, and it rolled out a trial payments service to a million users in February 2018 Two months later, the Reserve Bank of India said payment-related data needed to be stored in the country and a complete rollout of the service has stalled WhatsApp says it adheres to those rules and hopes to be able to fully launch the service to all users in India in the coming months Analysts say that Google, having fully launched Google Pay before the guidelines were issued, hasn't been affected "One year ago no one knew about this app," said Surender Singh, a sales clerk in a New Delhi smartphone shop While customers still use rival apps, Google Pay's usage is surging more than others, with nine or 10 people a day using it at his shop to buy items like chargers and headsets, spending as much as $40 per transfer, he said "If people don't have credit cards or cash, they use Google Pay," said Mr. Singh

Diversified conglomerates can unlock value through: 1) portfolio management, 2) restructuring, 3) ____________ skill, 4) share activities

transfer

Four ways to add value

You buy an asset on the cheap (portfolio managers), but it requires being smarter than the market in pricing the asset You run the target company more effectively (restructurers; make it better) You gain market power, so you price higher You exploit synergies (combining is more valuable; revenue or cost), combining assets to create more value ... 1+1=3

Paranoid Survivor (reading notes)

Andrew Grove, the former boss of Intel, believes other fields can learn from the chipmaking industry that he helped bring into being Dr. Grove is a living legend in Silicon Valley and a former boss of Intel, the world's leading chipmaker Healthy attitude towards creative destruction is not shared by other industries This is just one of the ways in which Dr Grove believes that his business can teach other industries a thing or two He thinks fields such as energy and health care could be transformed if they were run more like the computer industry—and made greater use of its products He has arguably done as much as anyone to usher in the age of cheap, cheerful and ubiquitous personal computing; in part, he did this through technological prowess (graduated top top of engineering class at NYC College, earned doctorate at Berkeley, and wrote a book on semiconductors that remains a standard text) Joined Fairchild Semiconductor, once a pioneering electronics firm, where he caught the eye of Robert Noyce (co-inventor of integrated circuit) and Gordon Moore (Moore's Law: the amount of computing power available at a given price doubles every 18 months) When the two left Fairchild to found Intel in 1968—initially to make memory chips, not microprocessors—they took the young Dr Grove with them, who eventually ended up in charge of the company (becoming chief executive in 1987) "One of the master managers in the history of American business" One reason is market success: under his tenure, Intel came to dominate the microprocessor industry and its market capitalisation rocketed (making it, at one point, the world's most valuable company) A bigger reason, though, lies in how exactly he managed to steer Intel to such spectacular success Dr Grove argues that every company will face a confluence of internal/external forces, often unanticipated, that will conspire to make an existing business strategy unviable In Intel's case, such a "strategic inflection point" arose because its memory-chip business came under heavy assault from new Japanese rivals willing to undercut any price Intel offered What could he do? The firm's roots and most of its profits lay in making memory chips; Intel's microprocessor group was just a small niche The firm's two founders and much of its engineering staff were too emotionally wedded to its past successes to make a break But Dr Grove decided to bet the future of the company on microprocessors, a move that saved his company and transformed the industry The second big decision was Dr Grove's radical announcement that Intel would market its microchips directly to consumers Previously, chipmakers had regarded computer-makers such as Dell and Compaq as their customers, and had not bothered with fancy advertising campaigns to end users; but Dr. Grove believed that such a relationship allowed these assembly and marketing firms, which did little original research of their own, to capture too much of the value created by his firm's innovation So he launched the "Intel Inside" campaign, which marketed microprocessor chips directly to consumers, starting in 1991 This angered his rivals and his immediate customers, the computer-makers, but the strong demand for Intel's new Pentium chip showed that the strategy had worked True, the firm stumbled when a minor flaw was discovered in the Pentium that affected some mathematical calculations Rather than rush to correct the problem, Intel tried to downplay it—a strategy that quickly turned into a public-relations disaster The firm was forced to offer a replacement for all affected chips, at a cost of nearly half a billion dollars Painful though that was, Dr Grove now thinks this episode actually benefited the firm in two ways First, it proved to internal sceptics that Intel really had become a consumer brand Second, he reckons that it bolstered his efforts to improve the poor quality of manufacturing, to protect the firm from future fiascos In hindsight, his risky decision to turn Intel from a component-maker into a consumer brand was a masterstroke Strict management style: his demanding but meritocratic approach, rewarding ideas and knowledge over power, was a rejection of the injustices of communism Dr Grove insists that it was his experience at City College, where talent and hard work were rewarded and where students challenged their professors without concern for rank, that impressed upon him the value of meritocracy By contrast, he recalls an elitist, back-stabbing and lax corporate culture at Fairchild; senior execs would stroll into the office or into meetings as late as they pleased, but blue-collar workers were penalized or even fired if they committed similar offences Dr Grove imposed a strict arrival time of 8am, with latecomers forced to sign a sheet; he also refused to go along with popular management trends (i.e. flexi-time & teleworking); he was known as a blunt and demanding manager, but he also gained a reputation as a fair-minded boss who rewarded good ideas, no matter where they came from He was determined to impose discipline on Intel, he says, for two reasons that ultimately worked to the firm's advantage First, he wanted to avoid the outrageous double standards he had experienced at Fairchild; the meritocratic culture he created at Intel then helped it attract the best talent in the industry Second, he knew that strong discipline would also be necessary to improve his firm's poor-quality manufacturing At the time the microchip business was producing such unreliable products that customers insisted that companies like Intel always license new products to a secondary supplier to ensure reliability of supply His efforts to tighten up quality control led to a commercial coup When his firm introduced its widely anticipated 386 processor, he stunned the industry by declaring that Intel would not license any secondary manufacturers This was a huge risk for computer-makers, but such was their appetite for the new chip that they bought it anyway Intel's ability to deliver good enough chips in large numbers meant profits no longer had to be shared with secondary manufacturers With his reputation for ruthlessness in the marketplace and rigorous discipline inside his firm, Dr Grove has much in common with another American business leader: Lee Raymond, the formidable former chairman of Exxon Mobil Both men were feared by both rivals and many of their employees Dr Grove once even spearheaded a sales campaign against a superior chip made by Motorola in an effort dubbed "Operation Crush" When asked about such bully-boy tactics, Dr Grove remains unrepentant; he even likes the comparison with the unloved oilman He regards electricity as the most promising replacement fuel, and thinks battery technology has the potential to produce an Intel-like giant as the industry develops Another business he believes to be ripe for disruption is health care; he complains that the industry seems to innovate much too slowly The lack of proper electronic medical records and smart "clinical decision systems" bothers him, as does the slow-moving, bureaucratic nature of clinical trials He thinks pharmaceutical firms should study the fast "knowledge turns" achieved by chipmakers, so that the cycles of learning and innovation are accelerated. A knowledge turn, coined by Dr Grove, is the time it takes for an experiment to proceed from hypothesis to results, and then to a new hypothesis—around 18 months in chipmaking, but 10-20 years in medicine And what of chipmaking—is it, too, a sunset industry ripe for disruption? Dr Grove still believes in Moore's law (with the caveat that it will get ever pricier for chipmakers to uphold) but he has a grave concern At a recent ceremony honouring his achievements, he shocked the gathered bigwigs by declaring that the industry's approach to hoarding patents was an abuse of intellectual-property rights and risked undermining its future He insists that firms must use their patents or lose them

Invention

Design, engineer, prototype Creativity

T/F Narayana Health still focuses only on cardiac services

False Originally a heart hospital (cardiac services as 45%), but now do orthopedics, gastral, neuro, renal, etc. Possibly common resources might be used in both; could come in needing multiple treatments so need to know how to treat Mission statement still applies But need to make sure you maintain quality and should arguably stick at what you're good at

Opening the WeWork problem up (complication and key questions)

Have too much space and growing too fast What does it take to extend this business out to determine if we have a working business? What can we do to stabilize this business to determine if we are profitable or not? Are they getting economies of scale? Industry-wide pattern or just WeWork? Price discrimination, when do economies of scale kick in, when should they give up/get out, how can they get out, customer acquisition costs

Scale and scope

Leadership economics: purchasing power on supplier, give customers more and more; extraordinary opportunity Proprietary set of assets and capabilities: better brands, good IT systems collecting data and customer feedback Economics of scope: multiple countries that you learn from; roll out product faster

McDonald's competition

Quick service restaurants - Wendy's (smaller chain so can implement change easily) - Taco Bell (launches several new items a year) - Chick fil a (high grosses) Fast casual restaurants - Premium burger - Starbucks and Panera

How does Google manage their innovation?

They report that half of new products come from the 20% rule Long history of acquisitions (YouTube, Waze) Not afraid to take risks and trim their portfolio when needed (i.e. Froogle and Okurt) ... For example, we would fund projects that have a 10% chance of earning a billion dollars over the long term Don't be surprised if we place smaller bets in areas that seem very speculative or even strange when compared to our current businesses

Networks is a set of __________

nodes

Matrix creates constructive ______________ between differing objectives

tension

Corporate strategy answers the question _______ to compete

where

Unlike IBM, Intel captured value by what kind of standards?

Proprietary

GE CEO Larry Culp (in-class reading)

When Larry Culp gathered top General Electric Co. officers for a summit north of New York City last month, the chief executive had a message for them: he wasn't going to dismantle their company Previously worked for Danaher (portfolio company); thought he'd break GE up buy surprisingly didn't They could be forgiven for suspecting otherwise The industrial giant GE, +0.17% had been through tumult, including the pressured departure of a 16-year CEO (Immelt), the aborted 14-month stint of his successor (Flannery), a long slide in the stock and a gutting of the dividend Cutting dividend is unpopular A finance chief teared up in 2017 as he revealed problems that had lain hidden inside a company once seen as the apex of American manufacturing might Now it had a new CEO, an outsider known for running his previous company as a collection of independent businesses orbiting a small central staff (Danaher) He put up a slide showing two organizational extremes On one end was a top-down, centralized management structure, similar to the way GE had operated for years The other end, he said, would be Berkshire Hathaway's BRK.B, +0.61% Warren Buffett sitting with just a handful of staff Culp said he had heard concerns from his lieutenants about moving GE in the direction of a decentralized corporate structure, as his predecessor seemed to be doing Then he said he agreed with the concerns—and he wasn't going to do it It was the first time Culp, GE's first outsider boss in its 127-year history, laid out his vision to the executives atop the conglomerate's power turbine, jet engine and other factories So far, he has moved about half of those corporate-level people into individual businesses and is giving the business units more autonomy Yet, according to people familiar with the meeting, he said he saw a significant role for a refocused corporate operation at the industrial giant, leaving intact the structure that stretches back to its 19th-century beginnings Though headquarters will be smaller, it will continue to oversee capital allocation (sharing activities and talent transfer), talent and technology In short, Mr. Culp's plan is to fix GE instead of breaking it apart, as some people inside and outside the conglomerate expected And in doing so, he is treating GE like any other company—hiring from the outside and importing management strategies The question is whether his deliberate approach will be enough to address GE's big problems At the early-September conference, held at GE's leadership academy in Crotonville, N.Y., Mr. Culp urged executives to be candid about problems they encountered It was an implicit repudiation of the culture of optimism that insiders say defined GE under former longtime CEO Jeffrey Immelt, which was dismissed by some as "success theater." Mr. Culp has said he doesn't want executives contorting to meet financial goals or please bosses. From Mr. Immelt's mid-2017 resignation until a year ago, John Flannery, a 30-year company veteran, led GE The board approved Mr. Flannery's plans to sell off the company's century-old locomotive division, exit the oil and gas business and spin off the health-care unit (restructure) Mr. Culp, named CEO in place of Mr. Flannery on Oct. 1, 2018, largely stuck to that outline in his first year, except he kept the part of health care that makes hospital equipment and sold the biotech part to the company he previously ran, Danaher Corp He has made other moves to reduce debt On Monday, GE said it would freeze its U.S. pension plan for about 20,000 salaried employees and make other moves that would cut its net debt by up to $6 billion One thing that hasn't changed much is GE's depressed share price The stock, which traded around $14 when Mr. Culp took over and fell to near $6 in the market slump last December, has languished below $10 for much of this year The company's market value has shriveled to roughly $75 billion from nearly $600 billion in 2000 GE used to be famous for 6 sigma but wandered off from roots

AdWords

Advertisements on Google's platform/property related to search terms Top or right hand side Clearly an ad

Talent economies of scale

Recruiting and integrating talent - Cross-training and pooling of talent - Recruiting physicians - Providing advanced analytics and mid-level managerial excellence - Enhancing IT support for EMR (electronic medical records) upgrade, meaning use, transition to ICD-10 Recruiting good people attracts other good people; can shift talent around (i.e. good professor can teach MBAs and BBAs)

A.G. Lafley interview (3 things)

Strategy is about winning and making decisions, but a lot of CEOs don't make decisions and are therefore not strategic "In our view, it means three things: uniquely positioning a firm in its industry, creating sustainable advantage, and delivering superior value versus the competition; it's important that you make the necessary choices to get all three elements right" Planning and strategy aren't the same; it's also a mistake to equate goals and strategies, or vision and strategy Win lose mental model You have to make decisions; ask the right question Discipline and leadership to determine what not to pursue Need to clearly define what winning means

General Electric's corporate strategy

Too many industries, people chase things that look well Lack of mission and corporate culture The more the merrier doesn't necessarily apply "Learning as we go mentality" Using "best practices" from different companies acquired

T/F Google's ROE has steadily increased over the last 10+ years

True... cannot overstate the return on equity they have had

Is innovation a strategy?

Yes Need all activities to work together (recruit right scientists, invest, governance committee for longer-term, strategic alliances) to achieve innovation Innovation landscape map

Is the iPhone disruptive innovation?

Yes: when it first entered it was competing against computers so clearly low-end of market and cheaper; less for less No: it's priced higher than Blackberry, adding features (fifth camera); more sustaining nowadays

Cost-of-entry test for diversification

Overpaying for acquisition -> buyers' remorse Underestimating the cost to ramp up start-up

What does it mean that China "leapfrogged" into digital payments?

A lot of people and stores in China/India don't have credit and debit cards Don't need to use technology 1.0 (cards)... can jump straight to 2.0

Financial economies of scale

Creating financial scale and stability - Accessing capital - Gaining leverage with payers and vendors - Lower per-patient and per-case costs - Enhancing revenue cycle and efficiencies Buyer power, working with suppliers, telemedicine (work remotely), raising funds

Threats to Google

Government Public perception and trust Advertisiers reducing spend (i.e. Amazon crushing digital avdertising)

T/F It's very easy for young companies to lose the founder's mentality and for established companies to lose the benefits of scale

True

Xerox and HP

Xerox considering HP takeover Have to consider cost of entry, are they better off together, does it make sense for long-term or just short-term, where you are in the business cycle, overlap in customers

Innovators are the _______ group to adopt a new technology

first

Disruptive innovations originate in _____ or ________ footholds

low-end or new market Low-end footholds: incumbents try to provide their most profitable and demanding customers with ever-improving products and services, and they pay less attention to less-demanding customers New-market footholds: disrupters create a market where none existed; find a way to turn nonconsumers into consumers

Dell origins

Michael Dell began in 1984 with a simple business insight: he could bypass the dealer channel through which personal computers were then being sold; instead he would sell directly to customers and build products to order; Dell eliminated the reseller's markup and the costs and risks associated with carrying large inventories of finished goods "You actually get to have a relationship with the customer," he explains, "and that creates valuable, which in turn allows us to leverage our relationships with both suppliers and customers" -> WTP Couple that information with technology, and you have the infrastructure to revolutionize the fundamental business models of major global companies

The Evolution of Search (video notes)

Google began as a research project in 1996; started based upon the PageRank algorithm, which was used to build a very novel way of searching the web There was a huge explosion of content in the web happening and a bigger explosion of information that had ever happened before -> increasingly hard to find the piece of content you wanted Goal is to make improvements to search that just answer the user's information need, get them to their answer faster and faster, so that there's almost a seamless connection between their thoughts and information needs with the search results they find In the beginning, Google didn't have any ads at all (later created AdWords in 2000) When Google went to add ads, it was important for them to be as relevant to the search as the results themselves; also important for ads to be distinguished from the results There was a clear separation between ads and search from the very earliest times Search's goal was to provide the most relevant information for the user in the fastest time possible As Google got better and better, users expected more and more from it Didn't want just webpages, they wanted the best possible information available (picture, book, etc.) -> Google started looking at how it could search for new and other forms of content -> Image Search (2001) When 9/11 happened and users searched for it, they found nothing related because Google's index was crawled a month earlier, so Google placed links to all the news organizations (i.e. CNN) right on Google's front saying "please visit those sites to get the news of the day because our search is failing you" -> Google News In 2002, Google saw that the web had become a lot more rich in images, video, and content -> users expected Google to be able to find something if it existed on the web -> Universal Search (Google could find anything no matter what type of content it was) Problem with Universal Search was Google had to compare apples (web pages) and oranges (images) Aspect ratio, pixels, color, only matter to Images not web pages Ended up putting things at the top, bottom, or middle of the page because Google didn't have a finer-grained way of looking at the relevance, especially across different media types Google has developed its science tremendously & is beginning to place several kinds of info in multiple positions on a results page as the algorithm improves Google's goal is to make it that the improvement it makes is so much what you wanted and fits so cleanly into the flow of what you're looking for that you almost don't notice that it's happened When you need a specific bit of information, Google tries to provide you exactly that using its Quick Answers Want users to come to Google and get information as quickly as possible; with an instant, you don't even have to type in your full thought or hit enter Users need much more complex answers & will increasingly ask more complex questions Future: users will continue to ask genuine questions that, if Google can answer, will make them more knowledgeable and more satisfied in their quest for knowledge Possible Star Trek computer of walking up and asking a computer a question

T/F Semiconductor industry provide temporary monopoly profits with new products

True Price chip high then after competitors come they lower prices then introduce new, better chip Don't want to launch the new one too early (cannibalize own business) or too late (competitors win market) Like iPhones

Industries have a ______________________ which moves from growth to maturity to decline

life cycle

Four major organization types: product, geography, ___________________, customer-based

function

Marketplace

A network where money/transactions flow between 2 or more sides of distinct (heterogenous) groups of users on each side Supply and demand meet Dating network, online auctions

Leverages existing business model, leverages existing technical competencies (innovation landscape map)

A next-generation 3 series for BMW A new index fund for Vanguard A new 3D animated film for Pixar

T/F McDonald's underwent rapid CEO changes in short period of time, which could have crumbled the company without good leadership

True

T/F More than half of M&A transactions destroy shareholder value

True

T/F McDonald's recent efforts to compete in the premium segment have succeeded

False... fallen flat (Angus Deluxe) because customers can't justify paying $4-5 when other menu items are a dollar

Google's core (current business)

Search Ability to provide highly-targeted ads is through AdWords and AdSense

T/F Narayana Health's insurance plan only costs a premium of 11 cents a month and provides $2,200 over coverage

True

T/F Restructuring is a viable and historically profitable way to unlock hidden value

True

T/F Semiconductor sales are rather cyclical

True

T/F There are many different kinds of networks

True

T/F Value depends on rarity and costs of imitation

True

T/F Ant Financial and Tencent are crushing it

True Ant Financial currently has $622M+ (2018) users - Ant Financial has 51% share of market, 16x larger than PVPL - Ant gets 0.03 cents per dollar in NI vs. 0.1 cents for US firms Ant Financial had a $10B raise (2018), valuing it at $150B - FB was $104B in 2012, Alibaba was at $168B in 2016 Ant Financial acquisition of Moneygram was blocked by US government

T/F Google is very ambitious

True Building autonomous driving vehicles, launching WiFi stations in hot air balloons over Africa

'Disruption, Disrupted': A Roundup (reading notes)

Everyone has their own take, based on a worldview that's limited to their own experiences; and yet everyone thinks they know exactly what it is (or isn't) The word itself is overused and misused; but disruption, the theory, is useful - especially for considering options and alternatives when faced with an uncertain future Disruption theory helps both startups and big companies as they figure out what to focus on and why The point isn't to be right or wrong about disruption; it's to be thinking about it at all The disruption dynamics that were always present in tech now apply to many other industries, fields, and professions "A company that does everything by the book can get blindsided by an innovation that rapidly takes away its markets, because it was doing everything right. An upstart low-end competitor displaces a much larger incumbent in a market, with the incumbent either retreating upmarket to higher margin/lower volume products or dying out altogether Disruption is a market/business phenomenon" "With specific data and analysis demonstrating that disruption has predictive power, disruption can really work" "Disruption theory is an attempt to reliably identify winning challenges; it includes a method of analysis of 'the setting' of the fight and 'the weighing' of the fighters Measures whether the challenger is sufficiently asymmetric and whether the incumbent is flexible enough in their likely response If there is insufficient asymmetry the theory would suggest the challenger will lose, and vice versa" "Three things irk me about 'disruption' as it's used in technology: 1. New products that do what existing products do, but (theoretically) better, are not disruptive... they are 'sustaining' 2. The misplaced obsession with low-end disruption 3. The characterization of obsolete technology as disruptive; disruption theory is dramatically over-applied in technology" "For an incumbent, it's costly to bet on new, unproven technology when things are going fine with the old one; the end result was incumbent preservation through acquisition Disruptive technologies (identified after the fact) are associated with start-ups competing and then being acquired as much as they are associated with those start-ups growing as independent firms" "At its heart, innovation is about change and challenge, things which horrify incumbents Incumbents benefit from the status quo, not new competition; incumbents often work together to quash competition and keep things as is" "Disruptive innovation is not a theory about survivability; it's a process, not an event" "Disruptive innovation is not a death sentence for a company; but it often triggers an industry shakeout, and while often the top players survive and come through stronger, weaker players fail or consolidated away; can have profound industry effects" "Disruptive innovation is nothing more than a theory about why businesses fail; doesn't explain change; isn't a law of nature; it's an artifact of history, an idea, forged in time; transfixed by change, it's blind to continuity" "The disruption narrative is one in which the upstarts are the heroes; their eventual victory over the established order is foreordained, and they are the force that moves society — or at least technology — forward, disruption by disruption" "Based on examples drawn from buying decisions made by businesses, not consumers; falsely assumes buyers are rational, every attribute that matters can be documented and measured, and modular providers can become 'good enough' on all the attributes that matter to the buyers" "Understanding disruption and how to deal with it is a key task for management, even if it's not the whole story; disruption has accelerated over the last 15 years for different and simpler reasons, namely, that power in the marketplace has shifted from seller to buyer as a result of globalization and the Internet, with a consequent shredding of many vertical value chains and the creation of new horizontal value chains" "There is an opportunity now for the theory to grow up" "Christensen's most embarrassing prediction was that the iPhone would not succeed; being a low-end guy, Christensen saw it as a fancy cell phone; it was only later that he realized that it was also disruptive to laptops" "The iPhone is not and never was a phone; it's a pocket-sized computer that obviates the phone; happens to include cellular phone networking as a feature" "The iPhone wasn't just a phone; it became a whole ecosystem; could be adapted to meet the needs, preferences and passing whims of every single user; a feat for which customers proved willing to pay a substantial premium; Apple was able to disrupt the existing producers of cheaper mobile phones like Nokia and Blackberry; different kind of disruption — disruption from above, with a better, more expensive product, rather than disruption from below, with an initially-inferior cheaper product "Steve Jobs' brilliance was in disrupting one market (portable computers) with a low-end offering while making a ton of profit with a premium offering in a different market (mobile phones)... and all by using the same product." "Android phones outselling iPhones somewhere between 5:1 and 10:1 worldwide" "Some of the toppling is the result of the natural process of market competition; why is it increasing so dramatically over a long period of decades?" "Theory sheds insufficient light on the question of how you tell a dangerous disruption from an illusory one; no clear metric of disruption; all disruptions are not equal; applying 'disruption theory' to every vertical value chain is misleading and doesn't deal with the tougher question about how to distinguish between dangerous and illusory disruptions" "Apple is focused exactly on the blind spot in the theory of low-end disruption: differentiation based on design which, while it can't be measured, can certainly be felt by consumers who are both buyers and users" "The current theory of disruption is incomplete; it doesn't have a broad enough concept of end-user quality; Apple brilliantly redefined conception what was possible from end-user quality and integration standpoint, against prevailing assumptions; disruption theory needs to be evolved to accommodate these newer patterns and learnings "Industries or institutions which have remained largely undisrupted include Energy, Education, Government, Healthcare, Airlines, and Hotels; the study of these anomalies continues and explanations identify conditions that prevent growth; dependencies on regulation, infrastructure, and absence of technological core enablers caused some of the atrophy to date; however signals of change are appearing in all these industries and paths to disruption are clearly possible"

Core competencies are _____________ and ________________

Resources and capabilities

Threats to McDonald's

Strong economy Health concerns (but trying to address) Competition from fast casual restaurants

Microprocessor (CPU or Central Processing Unit)

"Brains" Runs all the programs

CNBC John Flannery interview (in-class video)

"What is GE's reason for being?" "Why does GE need to exist?" Execution matters; has always been innovative, impactful, etc; significant amount of synergy Want to simplify the portfolios Synergies of branding, big data, etc. matter ... Has been poor at portfolio management and restructuring but trying to justify by transferring skill and sharing activities

Narayana Health today

23 hospitals, 7 heart centers, and 19 primary care facilities One of the largest telemedicine networks in the world Innovation: real time data on 30 parameters to improve efficiency Listed on Bombay Stock Exchange (BSE) in 2016; $1B+ market cap Global - Bangaldesh and Cayman Islands (plans to enter Africa) 7,000+ beds and 30+ specialties

Profit from the Core (2001), Zook, Allen

90% of companies worldwide failed to achieved sustained, profitable growth over the past decade Argues that most growth strategies fail to deliver value - or even destroy it - primarily because they wrongly diversify from the core business The authors contend that this timeless strategic prospect, building market power in a well-defined core, remains the key source of competitive advantage and the most viable platform for successful expansion Core competencies are resources and capabilities P&G has a great history

WeWork S1 Filing (reading notes)

A community company committed to maximum global impact with a mission to elevate the world's consciousness; has built a worldwide platform that supports growth, shared experiences and true success Provides members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure Believe our company has the power to elevate how people work, live and grow Opened in NYC in early 2010; over the past nine years, we have rapidly scaled our business while honoring our mission Today, our global platform integrates space, community, services and technology in over 528 locations in 111 cities across 29 countries Our 527,000 memberships represent global enterprises across multiple industries, including 38% of the Global Fortune 500 Over 50% of members are outside of the US We have proven that community, flexibility and cost-efficiency can benefit the workplace needs of everyone from global citizens to global enterprises We pioneered a "space-as-a-service" membership model that offers the benefits of a collaborative culture, the flexibility to scale workspace up and down as needed and the power of a worldwide community, all for a lower cost Through iterative product development at scale and significant investment in technology infrastructure, we have demonstrated that we can build better solutions for less money We have disrupted the largest asset class in the world—real estate. We start by looking at space differently: as a place to bring people together, build community and enhance productivity We believe in bringing comfort and happiness to the workplace We employ over 500 designers and architects who work relentlessly to create spaces that are beautiful but simple, elevated but approachable, global yet locally unique, all delivered at a high quality without the associated expense Next, we add a team of over 2,500 trained community managers who foster human connection through collaboration and holistically support our members both personally and professionally Lastly, with a persistent dedication to improving the member experience, we add products and services to our platform, either by building them ourselves, acquiring them or entering into partnerships The entire member experience is powered by technology designed to enable our members to manage their own space, make connections among each other and access products and services, all with the goal of increasing our members' productivity, happiness and success Technology is at the foundation of our global platform The more locations we strategically cluster in a given city, the larger and more dynamic our community becomes Today, we are signing more multi-year membership agreements for various space solutions across our global platform We believe the following trends are enabling the re-invention of work and will allow us to continue to grow our business: - Urbanization: People are moving to major global urban centers, prioritizing greater accessibility to services and increased human connection - Globalization: The world is increasingly connected through trade and the movement of capital, people and information across borders - Independent workforce: People are increasingly engaged in independent work - Flexible solutions: Individuals and organizations are increasingly looking to lower fixed costs by converting long-term lease obligations into flexible solutions that can expand and contract with their evolving space needs in a capital-efficient manner - Workplace culture: People are increasingly seeking environments that humanize the work experience - Sharing economy: People are demonstrating a greater willingness to share, driven by a desire for value, quality and variety Individuals and organizations turn to us directly to solve their workspace needs because of the value of our integrated solution—space, community, services and technology—and the scale of our global platform In the 111 cities in which we had locations as of June 1, 2019, we estimate that there are approximately 149 million potential members We expect to expand aggressively in our existing cities as well as launch in up to 169 additional cities We are able to deliver a premium experience to our members at a lower price relative to traditional alternatives In 2014, we made a bold decision to expand internationally to cities around the world As our global community grew, we realized that community, flexibility and cost efficiency can benefit the employee needs of organizations of all sizes In 2016, we took another leap and made the strategic decision to expand our focus to meet the needs of a broader range of organizations, particularly enterprises We pioneered a "space-as-a-service" membership model - Flexibility, global mobility, enhanced culture, variable and lower cost = We provide standard, configured and on-demand memberships within our spaces Our strong unit economics, together with the increasing cost efficiency with which we open new locations, gives us the conviction to continue to invest in finding, building and filling locations in order to drive long-term value creation We can prioritize growth within our existing pipeline We can control the speed of growth of our new locations We are just beginning to add value-added products and services to our global platform We expect to focus on more capital-efficient approaches to growing our global platform We envision a future in which our global platform is a one-stop shop where members have access to all of the products and services they need to enable them to work, live and grow Strengths: - We are committed to our vision - Our member community is strong and growing - Our global platform integrates space, services, and technology - We have attractive economics - Our future impact will transform the way people work, live, and grow We intend to grow by: - Expanding in new and existing markets - Enhancing product and service offerings - Developing and strengthening relationships with enterprise members - Lowering upfront capital costs and improving operational efficiency - Investing in technology Some risks include: - The sustainability of our rapid growth and our ability to manage our growth effectively - Our ability to expand in new and existing markets and enhance our solutions and product and service offerings - Our ability to achieve profitability at a company level in light of our history of losses - Our ability to retain existing members and attract new members - Risks related to the long-term and fixed-cost nature of our leases - Risks relating to our ability to generate sufficient cash and to obtain financing on adequate terms - Our ability to maintain the value and reputation of our brand - Risks related to our transactions with related parties - Our Co-Founder and Chief Executive Officer has control over key decision-making as a result of his control over a majority of the total voting power of our outstanding capital stock - The success of our strategic partnerships Because Adam will control a majority of our outstanding voting power, we will be a "controlled company"

Capabilities

Ability to utilize assets profitably Sales and marketing HR management, legal acumen, culture, new product design, financial engineering, brand management, forecasting

Chris Kempczinski

Became McDonald's CEO this year Vowed to continue strategic initiatives and must address wider industry challenges, including improving labor relations, increasing demand for healthier food options, an upgraded restaurant and tech experience, and fast delivery (on- and off-site)

Oil and vertical integration

Companies such as Shell and BP came to control every step involved in bringing a drop of oil from its North Sea or Alaskan origins to a vehicle's fuel tank ... In the 1970s and 1980s, many companies that were primarily engaged in exploration and the extraction of crude petroleum decided to acquire downstream refineries and distribution networks

Who does Google compete against? Isn't their business more than search?

Competes against most everybody Portals (Gmail, Finance) compete against Yahoo and MSN E-commerce (Maps, Android Pay, Google Express, Google Flights) compete against Amazon and eBay Operating systems (Android IOS) against Apple IOS Document management (Slides, Docs, Calendar, Sheets, Drive) against Office 365 and Dropbox

Memory

DRAM, SRAM, ePROM Short-term memory; cheap, fast, but needs electricity to be refreshed What Intel used to make

Google's 10K (reading notes)

Following trends contributed to the results of Google's consolidated operations, and they anticipate that they will continue to affect their future results: - Users' behaviors & advertising continue to shift online as digital economy evolves: shift from an offline to online world has contributed to Google's growth - As online advertising evolves, Google continues to expand its product offerings which may affect its monetization -- I.e. increase in YouTube engagement ads monetize at a lower rate than traditional desktop search ads -- Shift to programmatic buying presents opportunities for advertisers to connect with the right user, in the right moment, in the right context; has a different monetization profile than traditional advertising buying - Users are using more diverse devices/modalities to access Google products -> advertising revenues increasingly coming from mobile and other new formats -- Users are accessing the Internet via diverse devices and modalities and want to feel connected no matter where they are or what they are doing -- Google seeks to expand their products and services to stay in front of this shift in order to maintain and grow their business -- Generates their advertising revenues increasingly from mobile and newer advertising formats, and the margins from the advertising revenues from these sources have generally been lower than those from traditional desktop search -- Accordingly, expect TAC paid to their distribution partners to increase due to changes in device mix between mobile, desktop, and tablet, partner mix, partner agreement terms, and the percentage of queries channeled through paid access points -> expect trends to continue to put pressure on their overall margins - As more users in developing economies come online, Google revenues from international markets continue to increase and movements in foreign exchange rates affect such revenues -- Continue to develop localized versions of products & relevant advertising programs useful to users in these markets -> increased revenues from international markets over time - International revenues represent a significant portion of their revenues and are subject to fluctuations in foreign currency exchange rates relative to the U.S. dollar - The portion of Google's revenues derived from non-advertising revenues is increasing and may affect margins -- Non-advertising revenues have grown over time.; expect this trend to continue as they focus on expanding offerings to users through products/services like Google Cloud, Google Play, hardware products, and YouTube subscriptions -- Non-advertising revenues primarily from sales of apps, in-app purchases, digital content products, hardware, and licensing and service fees -- Margins on these non-advertising businesses vary significantly and may be lower than the margins on their advertising business - As Google continues to look for new ways to serve users & expand its businesses, it will invest heavily in R&D and capital expenditures in areas of strategic focus such as advertising, cloud, machine learning, search, & new products & services -- Capital expenditures have grown over time due to heavy investment in data centers, real estate and facilities, and IT infrastructure -- Acquisitions remain an important part of Google's strategy - Employees are critical to Google's success & will continue to be invested in Reported segments are: Google (Ads, Android, Chrome, Google Cloud, Google Maps, Google Play, Hardware, Search, YouTube and technical infrastructure) and Other Bets Google generates revenues primarily from advertising; sales of apps, in-app purchases, digital content products, and hardware; and licensing and service fees Other Bets is a combination of multiple operating segments that aren't individually material; includes businesses such as Access, Calico, CapitalG, GV, Verily, Waymo, and X Revenues from Other Bets derived primarily through sales of internet & TV services through Access as well as licensing and R&D services through Verily Paid clicks for Google properties represent engagement by users & include clicks on ads by end-users related to searches on Google.com, clicks related to ads on other owned properties including Gmail, Maps, & Google Play; and viewed YouTube engagement ads As business evolves, Google periodically reviews, refines & updates its methodologies for monitoring, gathering, & counting the number of paid clicks on properties Advertising revenue growth rate has fluctuated over time due to many factors, including challenges in maintaining growth rate as revenues increase to higher levels, changes in product mix, increasing competition, query growth rates, investments in new strategies, shifts in the geographic mix of our revenues, & the evolving online advertising mkt Google properties revenues consist primarily of advertising revenues generated on: search properties which includes revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.; & other Google owned and operated properties like Gmail, Maps, Google Play, & YouTube Google Network Members' properties revenues consist of ad revenues from ads served on AdMob, AdSense, & Google Ad Manager; increased 2,395 million from 2017 to 2018 The US accounts for nearly ½ of revenues

What is Google's core competency?

Gathering, organizing, and collecting data - Software, page rank algorithm, data itself, more searches -> better you get Willing to place bets and encourage innovation Clear mission, trying to organize and make data useful, culture of innovation

A.G. Lafley says strategy is about trade-offs... name a decision he made that reflects this philosophy

Getting out of food business (Pringles) because it wasn't the best fit for P&G, didn't have very high growth potential, and flavors/taste would have to differ by market (which doesn't make sense with superbrand approach)

2x2 founder's mentality matrix

High and low benefits/economies of scale (buy for cheaper, superbrands, easier to recruit) Low and high benefits of founder's mentality (ownership)

Narayana Health as a business

Higher purchasing power Reputation as a specialized heart Increased number of operations - Increased utilization - Reduced unit cost - "Wal-Martization of care"

Intel Inside

Impressive 30+ year marketing campaign to pull demand

Background of Indian healthcare

In 2003, only 1% of GDP invested in healthcare Number of physicians per 1,000 population was 0.5 (vs. 2.7 in the US) Only 14% of population covered by health insurance (now changing) Large demand for cardiac care - 2.4 million people need surgeries, however, only 60,000 were performed - Estimates that 28% of those who die from heart attacks were <65 years Lack of rural care (health care cities developing) - Need for telemedicine - Need for broader-based insurance coverage

Background on P&G

Many distinguishing characteristics: - First profit sharing program - Paying dividends continually since 1890 - First centralized R&D labs (practically invented segmentation by realizing customers aren't just one type of person - First market research department - Invented the soap opera in 1933: Guiding Light Large R&D led company: - Ivory invented by Gamble's son in 1897 - Tide (secret project) created against Brand Management P&G takes deep pride in its organization and governance

What is a matrix organization?

Matrix means you report to two bosses or more (i.e. report to Europe and beauty projects) Matrix creates constructive tension between differing objectives Try to enhance collaboration (but often results in just a lot of people being CC'd in emails)

___________ Law says computing power doubles every 24 months

Moore's

Network effects

Occurs when a product or service becomes more valuable to its users, the more people use it Does NOT mean something goes viral and grows quickly

Companies which conduct M&A more frequently are better at capturing synergies

Portfolio masters (5+ deals in 5 years; 1,339 companies) represent 6% of total companies and 25% of total deals Strategic positioners (2-4 deals in 5 years; 6,354 companies) represent 28% of total companies and 40% of total deals One timers (1 deal in 5 years; 18,891 companies) represent 66% of total companies and 34% of total deals ... BCG argues that portfolio masters (likely smaller acquisitions in higher growth markets) develop a core competency with M&A and yields superior returns to those who merge/divest less frequently Over time, the portfolio masters (high M&A) have annual total shareholder return of 10.5% vs. every-once-in-a-while M&A companies of only 5.3% Portfolio masters are willing to pay a premium, close deal faster, and buy in downturn In periods of stable growth and cheap money, many decision makers look to M&A in order to increase company value, but proper execution and planning are critical to the deal's success Portfolio masters: companies that execute at least 5 major transactions, buying or selling, over a 5-year period and use acquisitions and divestitures as a way to build strategy To be like portfolio masters, be bold, buy growth over margin, don't worry about the market, and move fast

Disruption

Process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses Specifically, as incumbents focus on improving their products and services for their most demanding (and usually more profitable) customers, they exceed the needs of some segments and ignore the needs of others Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable (good enough) functionality - frequently at a lower price; incumbents, chasing higher profitability in more-demanding segments, tend to respond vigorously Entrants then move upmarket, delivering the performance that incumbents' mainstream customers require, while preserving the advantages that drove their early success; when mainstream customers start adopting the entrants' offerings in volume, disruption has occurred

Challenges of disruptive innovation

Risk, many fail, cannibalization (if you do a good job of disrupting your own business, your business is likely to become smaller)

Business unit (competitive) strategy

Single product market How to create competitive advantage How to compete (against other people) ... I.e. Samsung's semiconductor competing; GE's power division

What is Google's main business?

Software, hardware (Google Home, Chrome-cast), advertising, utilizing data

Strategic inflection point

Something changes -> time for business to die or chance Making bold moves to dramatically change or face potential ruin Deciding to switch over to CPUs instead of continuing with DRAM

Is search a winner-take-all category

Sort of, at least as evidenced by India and US Makes sense because don't want to search for search platform and the mores searches you see the better you get at it Market share by region: - India: 94% - US: 79% - Japan: 69% - South Korea: 53% - Russia: 39% - China: 6%

Industry lifecycle

Spans multiple decades (30-40 years) unlike technology adoption (3-5 years) Embryonic (introduction/pioneering) -> growth -> shakeout -> mature -> decline Plots market size on Y Product, customer intimacy, operational excellence, category renewal innovation

Alibaba and Tencent Set Fast Pace in Mobile-Payments Race (reading notes)

Silicon Valley is home to the world's most influential consumer-tech firms, but China's online corporate titans are way ahead in the race to build mobile-payment services in many of the world's fastest-growing consumer markets China's digital-payments market, by far the world's largest, is dominated by e-commerce giant Alibaba Group Holding Ltd. and social-media champ Tencent Holdings Ltd Now the two are imparting money and know-how to mobile-money startups in other Asian markets, from Indonesia to India As people across Asia increasingly move from cash to smartphone apps for buying goods and transferring money between individuals, U.S. firms are "still very focused on their home market," trying to increase usage there" When it comes to mobile payments, China dwarfs the US In China, QR codes are used widely by smartphone owners to pay bills and make purchases in shops and at vending machines—contributing to a $9 trillion mobile-payment market last year; almost 90x the size of the U.S. mobile-payment market of $112 billion Two payment platforms—Alibaba-backed Alipay and Tencent's Tenpay—handle some 90% of China's online payments by transaction value As China's market matures, Alibaba and Tencent are chasing growth overseas, helping local startups in emerging markets run mobile-money systems that don't require plastic Chinese investors supplied the bulk of $2.7 billion in funding to Asian financial-technology startups in the second quarter of 2017; their experience in China and technical savvy may prove even more valuable As in China, merchants in many emerging markets lack point-of-sale machines needed to process payments via Apple Inc. 's Apple Pay and Alphabet Inc. 's Android Pay Meanwhile, few consumers in these markets have credit or debit cards to make payments Executives at India's largest mobile-payment app, Paytm, drew inspiration from Alibaba, one of its main funders Paytm's chief financial officer, Madhur Deora, said his company benefits from frequent meetings with senior Alibaba executives Paytm staff travel to Alibaba's offices in China and vice versa Despite recent dips, analysts expect mobile payments in India to continue rising in the years ahead "We exchange thoughts on design and product," Mr. Deora said, referring to the way apps appear graphically on smartphone screens and how services can increase user engagement It is invaluable, he said, to have a backer who knows that if a new feature takes off, "you could have 100 million people using it" Mr. Deora and his colleagues had noted that Alibaba was offering users of its app access to online money-market funds, so the Indian firm decided to riff on that product "Our takeaway was that it had to be an instrument people could relate to," Mr. Deora said The result is a savings product that Paytm's more than 225 million users in India can use to purchase portions of gold bars through the platform—an idea designed to appeal to consumers accustomed to storing wealth in the precious metal When India's government last year suddenly canceled 86% of currency in circulation to clamp down on corruption and tax evasion, Paytm swooped in It bombarded India's merchants—the vast majority of which don't accept credit cards because they lack swiping machines—with stickers bearing the Paytm logo and QR codes The service's user numbers skyrocketed. Now, Paytm is used in India to pay for items from roadside hawkers, rides from auto rickshaws and more Sellers don't need special gadgets beyond the QR code, which transfers money from a buyer's mobile account into the vendor's Paytm added to its heft in May, raising $1.4 billion from Japan's SoftBank Group Corp Alphabet's Google on Monday launched its own mobile-payment smartphone app in India, which people can use to transfer money to individuals and businesses without the use of a credit or debit card Meanwhile, Alibaba and its affiliate Ant Financial have invested in Thailand in a financial-services company called Ascend Money China's digital-payment kings have another incentive to reach out: Chinese international tourists, a fast-growing consumer group Alibaba and Tencent want to build links in their mobile-payment platforms to ensure their core services are available to Chinese consumers wherever they travel Ant Financial has partnered with Indonesian media conglomerate Emtek to launch a digital-payments service in that country, and with a financial-technology firm in the Philippines Alibaba has been helping startups learn to use new cloud technologies to handle transactions efficiently in their home market, according to a person familiar with the matter Engineers for Emtek traveled to Alibaba's headquarters in Hangzhou for training in cloud technologies, the person said Alibaba processes a "huge amount of payment transactions in peak moments" and that kind of experience is hard to acquire, the person added Tencent last year led a $175 million round of fundraising in Indian messaging app Hike Ltd In June, Hike brought a payments feature to its platform, beating larger competitors. Hike founder Kavin Bharti Mittal has said the app draws upon Tencent's experience running China's biggest social network, WeChat, which is popular for its messaging, mobile payments and entertainment features "China is a few years ahead of us" and working with Alibaba is "sort of our university, said Amit Sinha, chief operating officer of Paytm's e-commerce marketplace

Resources

Tangible or intangible Location, human capital, patents, experience, technology/equipment, reputation, working capital, loyal customers

After 2009, why did GS make the change from trading to investment management?

The Volcker Rule, part of the Dodd-Frank Act, now prohibited proprietary trading (which GS was famously good at) Capital and liquidity requirements were much stricter, and regulation dramatically changed the derivatives market As a condition of receiving financial assistance from the US government during the financial crisis, Goldman changed its structure from an investment bank to a bank holding company, which also brought additional regulation and cost

Strategy is all about making choices (Lafley)

There's a mindset among CEOs and other leaders that they don't want to get pinned down or painted into a corner; they want to keep all their options open Why do they want that? Because they don't want to take on the risk of making a bad choice or a wrong choice; but the fact is, strategy is all about making choices (corporate strategy) - choosing where you're going to play and how you are going to win, along with what winning means John Flannery (GE) would be ridiculed; can't be open-ended or desire optionality Strategy is about trade-offs

T/F If incumbents were to break off their business, they'd want to still focus on core without confusing customers (straddlers)

True

T/F Goldman Sachs is opening platform to clients and open app environments (API)

True "Why are they sharing the data and tools how they arrive at insights with clients? Isn't that the special sauce?" Chavez: "It's a strategy"

T/F Investment banking continues to do well

True Been doing this for a long time

T/F There are multiple types of innovation which occur at different times of the industry lifecycle

True Embryonic/growth (product innovation) Growth/shakeout (customer intimacy innovation: movie theaters trying to add comfy chairs, make more of an experience) Shakeout/mature (operational excellence innovation) Mature/decline (category renewal innovation: movie pass or Regal Cinema pass) ... Industry can also look different depending on geography (i.e. Starbucks in Italy more embryonic while US more shakeout/mature)

T/F Intel has transitioned from a growth company to a more reliable, steady dividend stock

True Higher dividends implies slower growing

T/F The US payments infrastructure has multiple middlemen (payment process, credit cards)

True Lots of legacy infrastructure and incumbents - Payment processors, card issuers, banks, credit card companies, etc. - Entire cycle happens in a matter of seconds/minutes - Processors make fees and/or sale commission Lulu -> First Data --> Visa -> Wells Fargo -> Visa -> First Data -> Lulu

T/F Goldman Sachs emphasized its "fee-based" and "more-recurring" revenue streams

True Moving away from proprietary trading Fee-based (investment banking, investment management, etc.) more diversified, well-rounded, less volatile Recurring revenue (FICC, equity securities) more like farming (less volatile) as opposed to hunting

T/F Economies of scale exist across many dimensions

True Financial and operational Talent, clinical best practices (protocols), and insurance risk

T/F FICC (Fixed Income, Currencies, and Commodities) is the trading business and generated more than half of total revenues in 2009

True (52%), but now it's closer to 12-15% GS was much slower in cutting down their fixed income traders Two of Goldman's FICC leaders have recently left the firm, and the new CEO (Solomon) is making changes

How young companies lose the founder's mentality

Westward winds: - Revenues grow faster than talent - Erosion of accountability - Lost voice of the front line - Unscalable founder ... Sustainable growth problem where you can't keep up with revenues; 10x growth rates can cause very bad things to happen Start talking about averages and math not activities Bring in functional professionals and new, complex voices that no longer representing front line Founder can be the problem

The Opening Dell: Michael Dell Plots His Return to the Public Market

What is Dell doing now and how are they different? Wants to be best all-in-one bundled IT Betting on hybrid cloud and which allows customers to blend their out-of-house and in-house IT (private and public; helps Dell because they're making the equipment) Betting on edge computing (processing data near the edge of the network where the data is being generated, instead of in a centralized data processing warehouse) ... Has historically made PCs but now with DropBox, gmail, etc. can now store elsewhere (don't need servers or PCs There are two ways to make money selling technology, goes an old industry saying: unbundling and bundling Thanks to the spectacular rise in recent years of cloud-computing services from Amazon and Microsoft, many firms have shifted chunks of software, data and applications previously stored on in-house servers to the new "public cloud" infrastructure Customers can now access a dizzying array of software and hardware offered as unbundled, cloud-based services Dizzying—but also bewildering The typical chief technology officer (cto) of a big firm, under pressure to take advantage of every computing advance from data-analytics to artificial intelligence to the internet of things (iot), is faced with a mish-mash of information-technology options The next big opportunity should therefore lie in simplifying this balkanised mess (big companies don't want to buy all the stuff separately -> bundling) That insight lies at the heart of Michael Dell's vision for the future of Dell Technologies, a giant it firm based in Texas The billionaire founded Dell in his college dorm room at the University of Texas in 1984 and by the age of 27 he became the youngest-ever boss of a Fortune 500 company (Mark Zuckerberg was nearly 29 when Facebook first made the list, in 2013) Mr Dell revolutionized the business of personal computers (pcs) by selling directly to customers, adopting just-in-time manufacturing and lean, global supply chains that undercut rivals Now Mr Dell is pushing forward his next revolution He is trying to save the ageing pc manufacturer from commoditisation by dramatically expanding its software and cloud offerings He took Dell private in 2013 helped by Silver Lake Partners, a Californian private-equity firm, in a deal worth $24.4bn At the time, Dell's revenues and profits were tumbling as the pc market was squeezed by the rise of mobile devices (substitute product) and low-cost Asian manufacturers (new entrant company) Its prospects were rapidly darkening Away from the scrutiny of public markets, Mr Dell invested heavily ($13.6bn in research and development since 2013) to strengthen Dell's capabilities in cutting-edge software and cloud integration He pulled off the largest-ever tech acquisition, gobbling up emc, a big American provider of data-storage devices and cloud-computing software, for $67bn in 2016 (vertical integration) Very few firms have been able to pull off a corporate transformation, says Michael Cusumano of the mit Sloan School of Management, but he thinks Mr Dell's labours are starting to produce results As a result of both ongoing investment and accounting charges related to the purchase of emc, Dell continues to make losses (see chart) but its growth engine is at last fired up On November 29th its quarterly results included a surge in revenues of 15%. The firm's cashflow from operations leapt from $2.4bn in the fiscal year ending in February 2017 to $7.7bn in the four quarters to November 2nd 2018; losses fell On its current trajectory, Dell looks set to achieve annual revenues this year of just over $90bn, up from roughly $80bn last year Dell's hope is that its investments in cloud computing and software, which offer far higher margins than the pc business, will soon return it to profitability A good example is Dell's crown jewel: vmware, a pioneer in virtualisation software, which allows software to run on multiple machines seamlessly. It is a publicly traded and profitable entity with a hip campus in Palo Alto, California Since Dell got hold of most of vmware through the emc acquisition, investors have been able to own a piece of Dell itself through dvmt, a special tracking stock that is meant to reflect Dell's ownership stake in vmware The real challenge begins after the vote Mr Dell's plan to emphasise software in future contains three bets The first is to be the best all-in-one provider of bundled it That may not be easy Norman White of the nyu Stern School of Business observes that combining a commoditised hardware business with an innovative software business is particularly hard to do And ibm's $34bn acquisition in October of Red Hat, a provider of open-source software, which it plans to sell alongside hardware, could make Big Blue a potent rival. Still, Dell's transformation is welcomed by many beleaguered it managers The chief information officer of a big British bank that spends over $50m a year on Dell kit says he values its ability to provide "converged infrastructure" that bundles multiple it components such as servers, data-storage units, networking switches and the software to make all this gear work together, into a single package Cheekily, Mr Dell promises customers to be the "one throat to choke" in case things go awry (Dell will handle all of your problems for you) Mr Dell's second big bet is on the rise of a "hybrid" (what is it and why it's advantageous to Dell; some in cloud and some you have yourself and advantageous because Dell makes the equipment they'd sell) cloud which allows customers to blend their out-of-house and in-house it Companies are growing nervous about putting all of their sensitive customer and business data on third-party clouds Lonne Jaffe, a former ibm man now at Insight, a venture-capital company, insists that hybrid clouds are the future The public cloud promoted by Amazon and Microsoft will remain a force to reckon with Dell cannot invest as much in innovation, and is sure to face ruthless price competition from Amazon Still, Dell may be catching a wave big enough to carry several firms. Last year Gartner, a consultancy, predicted a "massive shift toward hybrid infrastructure", with 90% of companies using hybrid clouds by 2020. A third bet is on "edge" computing. As countries roll out 5g networks and firms put smart sensors into everything, the iot should arrive. Mr Dell says it will make demands that the public cloud cannot satisfy. If an autonomous vehicle (av) senses it is about to hit a deer on a country road, he asks, must it wait for software housed in a distant public cloud to give it permission to stop? It is an unlikely scenario but one Dell is using to promote its iot division. One of Dell's big customers says the answer is obvious. "Decisions must be taken absolutely in real time, a car is a data centre on wheels," says Simon Bolton, chief information officer of Jaguar Land Rover (jlr), an Indian-owned carmaker. The answer is edge computing, which allows the car to have a lot of computing power in the boot. jlr has long used Dell desktop computers, emc storage devices and vmware software. Now it is using other bits of the firm's kit (cyber-security software, for example) as it develops edge-computing systems. Last year, Dell created a new division devoted to the iot. It has promised to invest $1bn in research and development over three years. Its venture-capital arm has invested in Graphcore, a British startup developing ai processors and software. Its super-fast chip, which enjoys very low latency (the time it takes for data to get to their destination), is ideal for use in avs. Graphcore is bringing these ai chips to market by putting them into Dell hardware, which the latter's legions of salesmen will promote to big corporate customers normally out of a startup's reach. In the end, the success of Dell's new strategies depends greatly on the person at the top. Sceptics wonder if he is yesterday's man. Others worry that his firm's recent growth spurt may be unsustainable, and question how long it will take for him to return the firm to profitability. It remains to be seen if he can blend the aggressive sales culture at Round Rock with a softer, innovation-focused ethos in Palo Alto. Mr Dell is confident that his bets will pay off. He notes that a public listing would "absolutely give us an acquisition currency," one that he intends to put to use as Dell shoots toward $100bn in annual revenues. He has managed to defy naysayers in the past. In 2015, Meg Whitman, then the boss of hp Enterprise, a rival it firm, predicted that the takeover of emc would prove an "enormous distraction" to Dell. In a headline the same year, Wired, a magazine, said the pc was dead and not coming back—Dell's pc sales have been rising. Accepting the scrutiny of Wall Street again will doubtless mean plenty more such provocations. Over to you, Mr Dell

Vertical integration is the merging together of two businesses at __________ stages of production

different

From the founder's mentality, there are benefits of founder mentality (passion) and benefits of ___________

scale

To be sustainable, core competencies should be __________________, relevant and durable

scarce

Taiwan Semiconductor Manufacturer Company (TSMC)

A contract manufacturer, also called a foundary - Unlike Intel (and Samsung), which makes their own chips Ability to invest in latest technology processes (experience curve) - Latest fab will be $20 billion Very successful; 56% of the contract manufacturing market - Market cap now exceeds Intel ... Only make the chips, don't design Only the builder Takes semiconductors architecture plans/designs from other people and make/manufacture them Make chips for people Other people come up with designs/money and make chip for you Gives you the option of just creating the design; don't need to buy big factory -> encourages new competition and creates new player

WeWork's leading and lagging indicators

Examples of leading indicators might include number of employees hired/laid off, change in the level of investment in advertising, number of new customers Examples of lagging indicators include financial data, ratio analysis, cost per output Balanced scorecard has both

Diversification inevitably adds costs and constraints to business units

A lot of meetings go nowhere ... One company discovered that a weekly executive meeting was consuming 300,000 hours of time annually because of the trickle down effect 1 weekly meeting took up 7,000 hours (head count x hours x weeks) However that forced 11 unit meetings (20,000 hours), forced 21 team meetings (63,000 hours) and forced 130 preparatory meetings (210,000 hours) in a chain reaction

Platform

A network of users and developers; the multi-sided feedback loop between those users, developers, and the platform itself creates a flywheel effect increasing value for each of those groups Place for third parties to build on top of it; B2B Operating systems; messaging app like WeChat

Chasm

Between early adopters and early majority Huge space where most companies die

Leverages existing business model, requires new technical competencies (innovation landscape map)

Biotechnology for pharmaceutical companies Jet engines for aircraft manufacturers Fiber-optic cable for telecommunications companies

SecDB

Goldman has always invested in technology, their SecDB was a great source of advantage Had been a source of substantial competitive advantage for Goldman, and the firm viewed it as a highly valuable asset WSJ quoted a source saying Goldman had rebuffed an offer of $1 billion to license the database, contemplating its value to be closer to $5 billion Paul Russo, Global Co-Chief Operating Officer of the Equities Franchise, said, "Advice was always free; clients paid for a bundle of services that included research and execution" Russo added, "If we don't cannibalize ourselves, someone else will" ... SecDB tracked and managed risk; calculated 23 billion prices daily across 2.8 mil positions & 500,000 mkt scenarios; helped GS/clients price securities, analyze potential trades, & monitor risk

Clayton Christensen

Innovator's Dilemma coined the term "disruptive innovation" HBS professor who defined disruptive innovation

SIMON

Predominantly served smaller clients, including independent and regional brokers and private wealth managers, not Goldman Sachs' typical institutional client (new market; product disrupts someone else's business) "Instead of making ten calls to us as they did before, clients can do scenario analysis of maturity and cost by issuer and get the information they want themselves, like Google" "By giving clients access on their desktop, we massively decrease the sales cycle" In 2015, the first year of SIMON's operation, Goldman attracted thousands of advisors from 18 brokerage firms, representing client assets close to $2 trillion ... Can now reach middle market and smaller institutional clients that we haven't usually worked in past Enabled clients to create and buy structured notes online in denominations as low as $1,000; mainly served smaller clients, including independent and regional brokers and private wealth managers, not Goldman Sachs' typical institutional client

Innovators

Technology enthusiasts First to adopt Love tech for its own sake First to appreciate the architecture of your product Spend hours trying to get the product to work Don't mind there's less documentation Pose fewer requirements than any other group They want the truth, access to the most technologically adept person, the newest stuff, and want it cheap Worth listening to them; they are a great sounding board (give you great/free feedback on product; beta testers) They are like kindling when making a fire Cool tools, technological interest, no interest in market success

T/F Industries (categories) often follow a predictable lifecycle with dramatically different economics and industry structure

True Industry lifecycle

Intel's two strategic inflection points

Abandoning DRAMS to higher value-added CPU chips Restructuring industry dynamics by sole-sourcing x386 chips

Dell's asset light model

Assets collect risk around them in one form or another Inventory is one risk, and accounts receivable is another risk With 70% of sales going to large corporate customers, accounts receivable isn't hard to manage because companies like GS and Microsoft and Oracle tend to be able to pay their bills In the computer industry, inventory can be a massive risk because if the cost of materials goes down 50% a year and you have 2 or 3 months of inventory versus 11 days, you've got a big cost disadvantage You're vulnerable to product transitions, when you can get stuck with obsolete inventory ... Can readily adapt to customer's changing needs; less risk I.e. Marriott doesn't own buildings just brand I.e. McDonald's doesn't own buildings just land; owned by franchisees

The Man Who Put Intel Inside (reading notes)

Andy Grove, who died on March 21st, 2016, was at the heart of the computer revolution and helped to bring about the computer age And just as Carnegie and Rockefeller worked their magic by building organizations rather than inventing new products, Mr Grove, though a brilliant technologist, worked his by building Intel from a startup into the world's dominant semiconductor firm Like Carnegie and Rockefeller, he built huge plants employing thousands; but whereas they flaunted their wealth and power, Mr Grove labored in a cubicle no different from those of his employees Mr Grove's genius was as an organization-builder and manager rather than as an innovator; his most obvious quality was his fierce intelligence He could be difficult and hot-tempered when confronted with idiocy, prickly when challenged He believed in the value of "creative confrontation" (which sometimes meant screaming matches) His successful management book, published in 1996, was called "Only the Paranoid Survive" Possessed of a fierce work ethic, he drove his subordinates as hard as he drove himself; but this combination of characteristics was exactly what was needed in the infant semiconductor industry He joined Intel in 1968 as its first employee, after it was founded by Robert Noyce and Gordon Moore He became Intel's president in 1979, its CEO in 1987 and, when he stepped down from the CEO job in 1998, having earlier been diagnosed with prostate cancer, he remained its chairman until 2005 The semiconductor industry, then as now, was defined by incredibly rapid change Mr Moore suggested (first partly in jest and then in seriousness) that the industry was governed by a law whereby the number of components that can be crammed onto a chip doubles roughly every two years Companies had to run at top speed just to stay in the same place A succession of competitors in Japan, South Korea and China tried to topple Intel During Mr Grove's 37-year career there the company courted disaster on several occasions: in the early 1980s, for example, he introduced an advanced chip, the iAPX 432 microprocessor, that was supposed to reshape the industry's future but turned out to be far slower than its competitors But he had a genius for coming back stronger than ever He masterminded Intel's switch from memory chips to microprocessors and, with Bill Gates, established the "Wintel" monopoly in personal computers, in which Intel's processors and Microsoft's Windows operating system became an unbeatable combination Mr Grove achieved all this by embracing management methods that are now so common that they pass without comment, but were then strikingly new He attacked corporate hierarchy and devolved power to front-line workers He combined this with an obsession for measurement and performance-related rewards: top performers got juicy stock options; and weak performers were shown the door Under the slogan "Intel inside", he ensured that the firm's processors became branded goods, not commodities Under his leadership it increased annual revenues from $1.9 billion to more than $26 billion and made millionaires of hundreds of employees His career is a testimony to the wisdom of America's liberal immigration policy and a testimony to America's ability to spot merit even if it comes in the oddest of packages By his own admission he was a "hotheaded 30-year-old running around like a drunken rat," but Mr Moore saw the genius behind the quirky persona Noyce was a visionary; Mr Moore was a technological virtuoso; Mr Grove was also a technologist but, to the surprise of many who knew him, he turned himself into a management genius, supplying Intel with drive and discipline and turning it round when it got into trouble For decades the Intel Trinity—Messrs Grove, Moore and Noyce—drove the semiconductor revolution in large part because they were such different people united only by a respect for raw IQ - Noyce was a visionary; Mr Moore was a technological virtuoso; Mr Grove was also a technologist but, to the surprise of many who knew him, he turned himself into a management genius, supplying Intel with drive and discipline and turning it round when it got into trouble America was good to the young Andy Grove, providing him with a refuge from totalitarianism and then a first-class education; in return Andy Grove was good for America, by helping it to remain at the very heart of the semiconductor revolution; his career was a parable as well as a triumph

Downstream and upstream

Businesses are downstream or upstream of each other depending on whether they are nearer to or further away from the final consumer (the "sea," is it were, to which the river of production flows) ... Upstream producers frequently integrate with downstream distributors to secure a market for their output; this is fine when times are good, but many firms have found themselves cutting prices sharply to their downstream distributors when demand has fallen just so they can maintain targeted levels of plant utilization

Dell's business model (summary)

Direct-to-consumer and make-to-order Grew rapidly and flexibly through virtual integration Free flow of information with suppliers and customers Reduced asset risk: lower inventory and A/R Optimized (minimized) number of strategic partners

Benefits of vertical integration

Gives organizations greater capacity to control access to inputs (and to control the cost, quality and delivery times of those inputs); in line with the changing organizational structure of the late 20th century, however, this logic became less compelling Control, quality, less communication errors, less people taking parts of profits, closer to customer (if forward), less transaction costs ... Whereas historically firms have vertically integrated in order to control access to scarce physical resources, modern firms are internally and externally disaggregated, participating in a variety of alliances and joint ventures and outsourcing even those activities normally regarded as core

What are characteristics of semiconductor manufacturing?

Large facilities requiring lots of fixed costs - Processing and automation equipment - Factories (also called fabs) maintain ultra-pure clean rooms Complex manufacturing has high marginal costs too - Hundreds of process steps - Long production time of 4+ weeks (for chips) High stakes poker with high R&D, FC, margin, entry

WeWork: A $20 Billion Startup Fueled by Silicon Valley Pixie Dust (reading notes)

Fueled by showmanship, an expansive vision and the occasional shot of tequila, Adam Neumann has propelled the New York-based office-space provider into being one of the world's richest startups With a valuation of more than $20 billion, or about 20 times annualized revenue, it is the fourth most valuable U.S. startup after Uber, Airbnb, and SpaceX WeWork's valuation has galloped higher in each of the past 5 years Neumann portrays WeWork as a Silicon Valley-style company that provides a "physical social network" for millennials The company's well-crafted image arguably masks the mundane nature of its business IWG PLC (office-leasing company with a business model similar to WeWork's) manages 5x the square footage and has about 1/8 the market value; Boston Properties Inc., the country's largest publicly traded office landlord, owns 5x the square footage and has a market capitalization of $19 billion WeWork takes on long-term leases for raw office space and builds out the interior with flexible spaces and modern design that it then subleases for terms as short as a month WeWork's strategy carries the costs and risks associated with traditional real estate Its client list is heavily weighted toward startups that may or may not be around for long WeWork is on the hook for long-term leases, and it doesn't own its own buildings Vacancy rates have risen recently, and it is increasing incentives to draw tenants "If you had positioned this as a real-estate company, it wouldn't be worth this... Neumann dressed it up & made it into a community, and that turned it into a tech play" Venture capitalists and mutual funds have poured billions into companies claiming they can upend traditional industries whether through the use of technology or their unique appeal to millennials Startups in the business of selling meal kits, mattresses and razors have received tech-like valuations based on the idea their rapid growth can continue for years Neumann often publicly compares WeWork to Uber and home-rental service Airbnb, whose valuations soared on the premise they were technology platforms, not taxi or hotel companies Starting to see some highly valued start-ups die down At WeWork offices, options include a single desk in an open space, dedicated offices with doors, and full floors for more established companies (i.e. Amazon) have couches, foosball tables and beer kegs for meetings and socializing, and events The model has proved popular, with 150,000 individuals renting space in more than 170 locations globally Neumann says it's not a real-estate or tech company and talks of "space as a service," a play on the concept of software as a service, in which a provider makes software available to users as they need it over the internet; he calls the company a "platform"—like a computer operating system—from which it can sell other services such as insurance or software Mr. Neumann told WeWork's PR representatives to push back against characterizations in the media of WeWork as a real-estate company and instead describe WeWork as a lifestyle or community-focused company, according to people familiar with the instructions He carries himself like a tech founder, sporting fashionable sneakers sand T-shirts; holds late-night meetings that can start at 11 p.m. and run for hours From WeWork's tiny early days, Mr. Neumann talked about how he was building a $100 billion business SoftBank, the Japanese tech company, invested more $ than any other into WeWork with its August infusion Neumann sold more than $100 million of WeWork's shares, an unusually large amount to sell before an IPO Last year, WeWork posted revenue of $436 million, missing a target set in 2014 of over $700 million, according to the company and projections provided to investors Mr. Minson, the finance chief, said WeWork doesn't expect profitability this year In 2014 it had projected it would have income of $500 million by now; Mr. Minson said WeWork could be profitable tomorrow if it weren't investing so much in growth Sales of services such as software make up 5% of revenue, and its upscale dormlike housing business, WeLive, has just two locations; recently launched a fitness club Occupancy of offices open a year have fallen to 90% from 97% last year Tech investors have pushed WeWork's valuation to more than $20 billion, about 20 times annualized revenue

Moore's Law

In 1965, Gordon Moore noticed that the number of transistors per square inch on integrated circuits had doubled every 2 years Doubles in speed and lowers cost This has continued for 50+ years Will likely meets its economic limit first - New semiconductor "fab" cost $6B - Technically possible, but too expensive - Distributed computing means desktop speed is less important Now no longer saves you money Shows how computing power has gotten cheaper, which is why physical storage/computational space has declined (from size of filing cabinet to tiny) Every 18 months, the speed of CPUs doubles and drops in price Implications: gets cheaper, but difficult to make this so while possible it no longer makes financial sense It's because computing power got so cheap that we can do a lot of things that we did (i.e. gmail free) Enables a lot of businesses to do things because computing get increasingly quicker and cheaper Can put twice the number of transistors/roads in same space

What change in the industry structure served as a catalyst for Intel to become the CPU leader?

Intel invented the microprocessor, but were late bringing to market Apple II had first product, based on Motorola processor was the first breakthrough Then IBM entered the market in 1981, they adopted open standards (IBM PC would work with a Dell PC which would work with an HP PC, etc.); vertical -> horizontal

T/F Intel was synoymous with memory chips for all of the 1970s, and early 1980s

True 1968: Started out making memory chips (DRAM, EPROM), putting more and more transistors on a chip (Moore's Law) - Essentially 100% market shares at beginning - Largely a commodities business; limited differentiation 1970s some competition, by 1980s Japanese entered with better quality, lower costs: - Access to capital at lower interest rates - Strong relationship with suppliers (kieretsu) - Higher chip yields (70-80%) vs. US (50-60%), meaning they were more efficient and made better chips with wafers Initially, Intel denied it, then improved ... Were getting crushed by the Japanese (who were more efficient), memory chips tend to be cheap and more of a commodity with less margin

The PC industry structure shifted from _______________ to ______________

Vertical integration to horizontal integration Vertical: IBM PC would have an IBM chip, IBM monitor, IBM memory chip, etc.; control distribution, apps, operating systems, PC, LCD, CPU; AT&T, Siemens, and IBM all operated independently down the line Horizontal: between Intel, Microsoft, IBM, it shifted to separate chip, monitor, operating systems separately - Operating system as Microsoft; Intel and Motorola as CPU

Stopping Red Ink Tops WeWork's To-Do List (reading notes)

We Co.' s growing losses suggest office-space company will need large sums of cash for years; it expects to gain economies of scale as it grows, but with each new office, it has certain fixed costs, such as putting in desks and building conference rooms As WeWork heads toward an initial public offering, the office-space company faces a fundamental problem: Its losses are growing as fast as its revenue WeWork's parent company, We Co., whose main business is renting and remodeling offices to sublease to other companies, disclosed in its IPO filing on Wednesday operating losses that ballooned 102% to $1.37 billion for the first six months Large losses are hardly abnormal among recent IPOs; We's losses, however, are also doubling along with its revenue, which suggests the nine-year-old company isn't wringing out enough cost savings as it gets bigger The lack of scaling is a potentially troubling sign for a company that has commanded a valuation more akin to a tech company than a real-estate firm If the losses keep going up, it's a problem, and, at the end of the day, they need to move toward profitability Much of We's costs go toward leasing and renovating office space and outfitting it with furniture As it grows, it expects to gain economies of scale—a phrase We mentions nine times in its IPO filing, and something one of its executives has long promised While software companies can cut the cost of adding and retaining new users as they grow, We, which has a lot of physical assets, doesn't enjoy this type of scale. With each new office, We has certain fixed costs, such as putting in desks and building conference rooms Finances suggest the company is not wringing out enough costs as it gets bigger With growth, We has brought down the cost of building out and designing new workspaces by streamlining its construction and design operations, leading to some savings (i.e. now spends 1/2 as much on a new desk) The company also says it is trying to find more landlords willing to join with WeWork and pay for renovations in exchange for some revenue or profits from the space, which would lower lease costs But other costs are escalating, as it is spending more on sales and marketing to find the next person or company to rent a desk or floor Only 30% of WeWork locations have been open for more than two years—the time at which offices reach stable occupancy and generate steady revenue, the company says We's growing losses suggest the company will need large sums of cash for years as it builds out offices, which could affect its valuation The company was last valued in a funding round from SoftBank Group Corp. at $47 billion, making it the most highly valued, venture-backed company in the U.S. Analysts at Sanford C. Bernstein & Co. in a January note to clients estimated that We would need $19.7 billion of financing through 2026 A 2014 financial plan predicted the company would be highly profitable by now We's operating losses jumped 135% in 2017, and an additional 81% to $1.69 billion last year its revenue followed a similar trajectory (growing) We's core business of leasing office space provides a consistent source of revenue growth, but it has yet to find other breakout hits, which will be essential for long-term growth; Mr. Neumann in the past has called the company a platform from which it can sell other services such as insurance or software Sales of business services purchased by its members, such as providing conference rooms, printing and parking, made up 5% of its revenue this year; another 12% of revenue comes from ancillary businesses, such as a custom office-design and construction service it calls Powered by We Its upscale dorm-like housing business, WeLive, still hasn't expanded beyond two locations despite Mr. Neumann's hope years ago that it would make up one-fifth of the business

Example of integration (Coca Cola)

Concentrate producers -> bottlers -> retail channels Downstream (towards ocean) and forward integration -> Upstream and backwards integration <----

TSMC Is About to Become the World's Most Advanced Chipmaker (reading notes)

Intel is pushed into second place by a Taiwanese rival After 30 years in the role, Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company (TSMC; the island's largest firm), will step down as chairman in 2018 He will hand the reins over to the current co-CEOs, C.C. Wei and Mark Liu, the former becoming sole CEO and the latter chairman Later that month the company will ship new semiconductors manufactured with its latest technology For the first time the world's most powerful chips will be made by TSMC, not by Intel, its American rival Intel and TSMC are different sorts of company Intel is an integrated device manufacturer (IDM) that both designs and manufactures chips TSMC is a "foundry", making chips for designers without factories, or "fabs", which cost a fortune; TSMC's latest fab will cost $20bn The Taiwanese company pioneered this model and is its dominant exponent; in 2017 it had 56% of the foundry market Intel led the pack in squeezing more computing power onto chips; turned Moore's law, which states that computing power doubles every two years at the same cost, into a self-fulfilling prophecy To do so they shrunk "nodes," the width of the channel etched into silicon chips The narrower the channel, the more computing power can be squeezed in Intel currently makes chips using a ten-nanometre (billionth of a metre) node; TSMC's new ones are made with a seven-nanometre node TSMC's rise to technological leadership is reflected in its valuation; in 2017, for the first time, its market capitalisation exceeded Intel's. How the company surpassed the king of chipmaking is hotly debated It is hard and expensive to shrink nodes; smaller firms have stopped trying One reason may be that by 2017 TSMC was investing close to $3bn (8% of revenues) on research and development Mr Liu claims TSMC spends more on node technology than Intel and Samsung, another IDM, combined The answer may also lie in the strength of the foundry model itself Intel is renowned for making computer processors and Samsung for smartphone chips; TSMC serves both customers and is ready to provide chips for new technologies as they arise TSMC's top five customers always account for roughly half of revenues, but the names change, and this variety helps TSMC to innovate Chipmaking also now requires a close partnership between manufacturers and designers Whereas switching from one foundry to another was once trivial, now companies work within the TSMC "ecosystem" for years before chips are manufactured Crypto-currency firms like Bitmain, a Chinese hardware manufacturer, which has been collaborating with TSMC for three years, are among hundreds of companies it works with; to switch fabs requires companies to duplicate R&D invested in TSMC's technology High switching costs may not be a product of technological complexity alone GlobalFoundries, a smaller American competitor, argues that TSMC is deliberately increasing these costs, using loyalty rebates, exclusivity clauses and penalties; TSMC says the claims have no merit. For now, TSMC is in a sweet spot and uses steady revenues from firms like Apple, which are unwilling to switch to IDM firms like Samsung that are also competitors, to fund R&D that other foundry firms cannot match; this sharpens its technological edge, which in turn attracts new customers; whether this can continue is unclear; Moore's law is running out of steam Beyond the next cycle of shrinking nodes the future is less certain As Mr Chang prepares to leave, investors will hope Messrs Liu and Wei are chips off the old block

Backward integration

Merging with something further back in the process If a food manufacturer were to merge with a farm

Forward integration

Merging with something further on in the production process (and thus closer to the final consumer)

Semiconductor

Required for turning anything on Digital; computational Computer chips, both for CPU and memory, are composed of semiconductor materials Important for both software (apps) and hardware (physical) International Business Machines Corp, Samsung, Intel, Qualcomm, LG, etc. all have semiconductor related patents, demonstrating the high-tech valuable space With computing power getting so much better, we were able to create MS Office, instantaneous WiFi, and various applications Allowed businesses to flourish and dropped the cost of anything computational related Like an architect (with pattern); long little rectangle

History of China's digital payments

Alibaba launched AliPay (shopping) in early 2000s to facilitate users transactions on Taobao (Ebay) Around the end of the decade, Taobao introduced its mobile wallet features, letting users transfer money to one another or split bills using QR codes; happened right when the amount of mobile users in China began to skyrocket (smartphones cheap for masses) Many people found themselves with more money in their bank accounts and linking them to AliPay Not many people had credit cards because Chinese officials made it hard for companies to get foothold there WeChat has grabbed 40% of mobile payment transactions in just 3 years ApplePay way behind Chinese rivals

India's Top Payment App Has Eyes on U.S. Market (reading notes)

Backed by the likes of China's Alibaba and Japan's SoftBank, Paytm means to expand into developed markets, CEO says India's largest mobile-payment app, backed by the likes of China's Alibaba Group Holding Ltd. and Japan's SoftBank Group Corp, has its eye on the US, its founder said Paytm founder and Chief Executive Vijay Shekhar Sharma said his aim is to expand into developed markets, also including Japan and Europe "I want to build a product made in India consumed by those...in the developed world" The U.S. mobile-payment market, where Paytm would face established players like PayPal Inc., amounted to $112 billion last year One of India's largest startups, Paytm was last valued at more than $7 billion, after raising $1.4 billion from SoftBank earlier this year It has yet to show a profit Mr. Sharma said the company would use its operations in Canada, where the app was launched in March, as a testing ground Paytm's customer base there is small, Mr. Sharma said, but the average transaction is larger than in India, where it has more than 260 million users Canadians can use Paytm to pay mobile-phone, cable, internet and utility bills, property taxes, and insurance Noida, India-based Paytm is also open to a partnership with Facebook Inc. 's WhatsApp, Mr. Sharma said, which would allow the messaging app's users to plug into Paytm's services Paytm has been preparing to add messaging to its own app Prime Minister Narendra Modi's government has been pushing Indian companies to become world-class India subsidizes technical education, but many graduates leave the country for better jobs in the U.S. and Europe Mr. Sharma, an engineering graduate of Delhi Technological University, began Paytm in 2010 as a mobile-payments firm It has since expanded into e-commerce and other payment services, and in May launched a private bank to compete with the state-owned banks The goal is at least 500 million savings clients by 2020, Mr. Sharma said The government gave Paytm an unintended boost last year by unexpectedly invalidating 86% of currency in circulation in a bid to crack down on tax evasion and corruption; in the cash crunch that followed, many Indians turned to mobile payment apps like Paytm "India is itself a huge opportunity," since many people still lack bank accounts and credit cards, Mr. Sharma said One local innovation for India is a savings product that allows Paytm users to buy gold, designed to appeal to the masses of people who store wealth in the form of jewelry "The country saves in gold and not in bank accounts," he said, noting that bank deposits, at about $250 billion, are dwarfed by nearly $1 trillion in household gold holdings Paytm has plenty of funds for the years ahead, Mr. Sharma said, and no plans for an initial public offering, though it will continue to seek "intelligent" private and institutional investors to help it grow

Business model

How a business is run and makes money I.e. Walmart and Kmart both offer cheap prices, lots of selection Describes how a business is run (value, profit formula, resources, and processes)

To determine whether opening Marquee up makes sense, what are the leading and lagging indicators to track?

Leading (show approach has potential): time saved from staff not needing to answer calls, level of new AI/applications being created, talent wanting to work on it, competitors and consumer attention/usage, attracting advisors Lagging (output): revenue, client assets

Problem solving as 2 big parts

Opening the problem up (SCQ addresses what's the issue, what questions to ask, etc.): - Situation (what's going on) - Complication - Key Question(s) Close the problem down: - MECE (mutually exclusive, collectively exhaustive) categories (buckets to address) to divide and conquer - Hypotheses (statement to prove or disprove) - Data / analyses ... Key question(s), MECE categories, and hypotheses are most important

How Intel created and claimed value

Raised WTP through Intel Inside campaign and capacity rationing (branding) Price high: first to market; price high and then introduce next generation (clever pricing) Lower cost: high FC business so need high utilization -> first to full volume, learn, and increase yields (lots of functioning pancakes)

Goldman's strategic inflection points

Shifting away from proprietary trading Issuing the Apple card Opening their internal system (Marquee) to clients

What activities does Narayana practice to create a virtuous cycle and competitive advantage?

Standardization; routine procedures Learning curve; high utilization Economies of scale from volume High quality Heart surgery; specialization

T/F Google experiments (planned emergence strategy) to discover what works; using its size and balance sheet to pay for dicoveries

True Some products are failures (i.e. social network Okurt)

Blue ocean and disruptive innovation

Talk about new, undeserved part of the market Blue ocean says it creates new demand While Southwest might have created new demand (new travel), Hyundai and Kia attacking Honda doesn't Both don't require technology

WeWork's Adam Neumann Steps Down as CEO (in-class article)

The charismatic, high-octane 40-year-old resigned under pressure as chief executive of WeWork's parent Tuesday and will relinquish control of the shared-office company, a rapid fall from grace that is unusual in the startup world and bucks a trend of high flying founders with unchecked control Mr. Neumann will also cede majority control of the company, with his super voting shares reduced to 3-to-1 from 10-to-1 Mr. Neumann's wife, Rebekah, a co-founder who also held the title of chief brand and impact officer, is expected to step away from her roles at the company—including as CEO of its private elementary school, the type of unusual venture that defined Mr. Neumann's desire to make We more than just an office-space company Mr. Neumann's position became tenuous after We postponed a planned IPO earlier this month amid concerns from prospective investors about its governance and ballooning losses The company, once valued privately at $47 billion, slashed its hopes for a public valuation to as low as $15 billion Further undercutting his position: eccentric behavior that was detailed in a Wall Street Journal article last week, such as a party-heavy lifestyle that included marijuana use in an airplane and unpredictable management decisions As recently as last week it seemed unlikely that he would ever loosen his iron grip on the company In internal meetings and those with outside advisers, Mr. Neumann was still expressing confidence that the company could pull off the IPO later this year with him at the helm Things changed after the company chose to postpone the listing; what followed was a five-day stretch in which the backers whose money and loose reins had fueled Mr. Neumann's rise turned against him A pivotal moment came when he lost the backing of SoftBank Group Corp. (other people's money), which owns nearly a third of We and had been a major supporter of Mr. Neumann; The Japanese conglomerate by last week was holding internal discussions about how to remove him The We Co.'s rapid expansion and flexible business model have helped it stay out in front of competitor, but some investors are saying its public offering might not be worth the risk In addition to being We's biggest shareholder, SoftBank has influence by virtue of its ability to keep pumping in the cash We needs. SoftBank had been expected to contribute as much as a third of the $3 billion We hoped to raise in the IPO Mr. Dimon had his own reasons for being hands-on: JPMorgan is deeply entwined with We Its investment funds were early backers; it had promised to lend the company and Mr. Neumann hundreds of millions of dollars; and it was the lead bank on the IPO The full-court press on We, dating back years, was part of Mr. Dimon's strategy to cozy up to promising startups that might pay JPMorgan to take them public and broker deals As of Friday and into the weekend, multiple members of We's board, including Mr. Dunlevie, indicated that they planned to support Mr. Neumann as CEO Mr. Dimon and JPMorgan's money-management arm also told him they didn't think he had to leave By Sunday, Mr. Dunlevie, once a staunch ally, met with Mr. Neumann to tell him he would stand with SoftBank in pushing for the entrepreneur to leave With its core business of leasing office space tricked out in millennial-friendly décor, many would-be investors saw the company not as a tech darling, but as an overvalued real-estate company with potential conflicts of interest Evidence of success in prior efforts to expand into new areas—dormlike apartments, fitness, retail—was scant The fate of the IPO now remains to be seen, but people familiar with the matter said it is unlikely to take place this year as planned We is in talks with JPMorgan and Goldman about a new $3 billion loan, which would likely require the startup to raise several hundred million dollars of new equity SoftBank is expected to chip in for more equity, and big real-estate firms may, too Together with the cost cuts, that could give We enough cash to keep operating through the end of next ye The company is considering shedding extraneous businesses and cutting costs, in part by axing a few thousand of its more than 12,000 employees In an email to staff, the two incoming CEOs suggested cutbacks could be coming for the company; "We will closely review all aspects of our company with the intention of strengthening our core business," they wrote, saying they anticipated "difficult decisions ahead Mr. Neumann will remain a wealthy man Entities he controls own roughly 30% of the company's shares—it's unclear how much of this is his and how much belongs to the other founder and early investors—and he has already taken out hundreds of millions of dollars from the company in stock sales He also has borrowed $380 million tied to his shares in the company, according to securities filings, one of the issues prospective investors objected to

Horizontal integration

Merging together of businesses that are at the same stage of production, such as two supermarkets, or two food manufacturers Achieve specialization

Benefits of going vertical -> horizontal

More flexibility (can grow faster like Dell with less risk) Can now outsource to best Massive specialization Lower cost (economies of scale) More options (can pick and choose) Better quality More adaptive to market

Motherboard

Nervous system of the computer ... Green plastic tray Holds together many of the crucial components of a computer, including the central processing unit (CPU), memory and connectors for input/output devices

Storage device

HDD, SSD - long-term memory, does not require electricity

AT&T, Time Warner, and What Makes Vertical Mergers Succeed (reading notes)

In the largest proposed deal of 2016, AT&T reached an agreement to buy Time Warner Some observers are skeptical, comparing the acquisition to the failed AOL-Time Warner merger of 2000; others say the new company will be a powerhouse AT&T's stock is not massively overvalued, as AOL's was; broadband has made the experience of consuming content far better than it was with dial-up; and consumers are shifting away from TV and toward mobile devices Combining the second-largest wireless carrier with the fourth-biggest entertainment company (one who includes HBO and CNN) is likely to create an unassailable mobile-entertainment business These are tempting arguments, but they're wrong The marriage of content and distribution, a "vertical merger," is no more likely to serve up value in this new setting than any deal in "wired" land would have been; and the real battle is not between content and distribution providers... it increasingly involves digital giants such as Facebook, Amazon, and Google Mergers live or die by a single question: Do the combined businesses have more value than each one does separately? If you're the acquirer, you can benefit in only one of four ways: - You buy an asset on the cheap (that's what portfolio managers do), but it requires being smarter than the market in pricing the asset - You run the target company more effectively (that's what restructurers do), but it requires being a better parent than the current management - You gain market power, allowing you to price the asset higher than you could otherwise - You extract and exploit synergy, combining assets to create more value than would otherwise be possible Potential for synergy: - Gaining access to great content: AT&T will now control brands such as Turner and CNN, get large subscription revenue streams from HBO, and own both traditional and digital media properties such as Warner Brothers and Bleacher Report creating "one of the most powerful combinations of content and distribution America has ever seen" -- The logic is seductive but doesn't pass the value creation test: AT&T is merely paying (likely overpaying) for the cash flows from those assets up front... there's no net benefit - Buying content cheaply or using it to differentiate: by owning Time Warner, AT&T can get content to keep customers on its mobile channels for less; in addition, Time Warner's content will help differentiate AT&T's wireless service -- These are common arguments, and flawed ones -- Whatever benefit a distributor gets from lowering the price of content comes directly at the expense of the content provider -- It's a zero-sum game: There's no net benefit, only a transfer from one pocket to another; exclusivity would help AT&T's wireless service but hurt Time Warner's content business (and regulators wouldn't allow it) If the content is not exclusive, why doesn't AT&T simply contract for it (i.e. the way Apple did with HBO)? Can't AT&T differentiate its wireless service in other ways, through better service/coverage or lower prices? Rejuvenating the core: some point out that because AT&T and Time Warner both operate declining businesses, combining them will bring growth, but growth doesn't come from combining two challenged businesses Creating more value: the new entity might offer new services that weren't available before (new content offerings on mobile; bundles of those offerings and wireless subscriptions or early access to Game of Thrones episodes; or targeted advertising that comes with better information on what consumers watch) - Can the new entity combine content and distribution assets in ways that couldn't be done contractually? Do you need a huge merger deal to strike such arrangements? - For a long time, distribution companies have worried that without owning content, they'll become "dumb pipes;" however, cable operators remain exclusive providers of high-speed broadband in many parts of the country - Even if you accept the dumb-pipe argument, buying content assets at fair or above-market prices doesn't make you smarter Framing the AT&T-Time Warner merger as the marriage of content and distribution misses something important: the battle for leadership in consumer video is between traditional content owners, distributors, and tech companies During the past year, Apple partnered with HBO to offer a subscription service, Twitter began streaming live NFL games, top publishers more than doubled their video output on Facebook, and Amazon broke out its video service from Prime None of these companies is a traditional content provider or distributor; for them, content isn't core, but it is an important complement (any product or service which, when cheap or widely available, benefits a company's core product) The cheaper a complement is, the more value it adds to the core product Each of those companies is betting that it doesn't need to buy a media powerhouse; it can acquire content at a lower price by partnering with one (as Apple has with HBO), by producing content itself (Netflix and Amazon), or by seeking out content from digital publishers and millions of other sources (Buzzfeed is often the number one source of video for Facebook) Apple looked at Time Warner earlier this year but didn't bite Only time will tell whether the AT&T-Time Warner marriage succeeds — it depends, as always, on leadership and management The future of TV no longer has to do only with content and distribution; it's also about connectors and complements

Narayana Health as a philanthropy

Allowed financially constrained patients to pay below break-even cost Patients who cannot afford low cost of treatment get help from NH Trust to arrange for the funds

Decision-driven organization

An organization is just a bunch of decisions (i.e buy vineyard, is Turley's relation a risk, etc.) Good financial performance comes from effective decision-making - Not from organizational structure (over-simplified view) When reorganizing, focus on decisions rather than structure - Different types: big one-off (vineyard/factory) vs. small routine decisions (push down in organization as low as possible) - Placing decisions in the right place (corporate vs. business unit) - What level does the decision need to take place? VP vs director - Reduce the number of decision bottlenecks - Align goals, processes, information, measures, and incentives - Train people Ask, "What are the key decisions to execute the strategy," and then reorganize around these decisions

Bowling pin approach

Approach for 1 profitable segment of pragmatists Attack a specific segment; goal of 40%+ market share Niche markets are profitable Address needs of specific users (not technologists) Drive word-of-mouth Way to potentially cross chasm Attack small market and own it (1 profitable segment of pragmatists)

Goldman takeaways

By making applications available to clients, Goldman hoped to claim valuable space on clients desktops and enhance customer dialogue that would position the firm as a preferred partner for trade execution and other transaction (want to create loyalty among institutional clients; felt analytics was a commodity) However, many saw this as a risky strategy: "Some outsiders and Goldman alumni question whether the firm will win enough client business to justify sharing more of its analytics with clients," reported a Wall Street Journal article Data is a valuable resource (RBV)

1980s hierarchy

Category management Brand manager -> category hierarchy ... Better economies of scale, not confusing customer or cannibalizing own business (i.e. head of OAM department ensures you don't read same cases and learn same things in Strategic and Organizational) Want to first sell product then later in time can start focusing on categories

McDonald's Case (reading notes)

Chris Kempczinski new CEO after Steve Easterbrook was terminated; joined global strategy team 4 years ago (then McDonald's USA president in 2016 and worked closely with Easterbrook) Modern HQ in Chicago with live restaurant, test kitchens, Hamburger University; WeWork-like location symbolizes future not suburban past 2015 low point: customers confused by menu, distrusted by quality, frustrated how long it took to get food, angry at exploitative labor policies; financial results painted same picture Shares dropped below 2012 price point in early 2015 while overall mkt up 50%; still remains largest quick-service restaurant chain (QSR) Early results from Easterbrook's strategic intiatives were promising Fall 2019 share price appreciated roughly doubled since March 2015 but traffic to restaurants remained stagnant McDonald's was started by the McDonald brothers in 1940 in San Bernardino, California By limiting the menu to burgers, fries, and drinks, Dick and Mac McDonald emphasized quality and streamlined their operations -> value-for-money menu, popularity, and eventual franchising Ray Kroc joined in 1954; together, they founded the McDonald's Corporation in 1955, with the vision of establishing McDonald's franchises throughout the United States Kroc bought out the brothers' shares in 1961, the same year that he founded Hamburger University; continued his plans for rapid expansion throughout the 1960s and 1970s, establishing more than 700 new McDonald's restaurants In 1965, the company held its first public offering, debuting at $22.50 per share Opened 1st international locations in 1967 (Canada); 1st stores in Japan/Europe in 1971 Kroc continued to add new items to the restaurant's menu: Big Mac (1968), quarter pounder (1973), Egg McMuffin (1975); full breakfast menu (1977); Happy Meals (1979) First drive-through in 1975 to serve nearby soldiers -> idea spread to other locations Competition heated up in 1980s "burger wars" as Burger King & Wendy's tried stealing McDonald's market share, but it kept expanding globally into 30+ countries & introduced even more new products, such as Chicken McNuggets in 1983 and fresh salads in 1987 Used efficiency & technological advances (i.e. microwaves) to gain operational advantages over competitors From 2003 to 2004, leadership at McDonald's underwent a rapid string of successions that would have crippled a company with a less talented executive bench Jim Skinner, previous vice chairman, implemented the company's "Plan to Win" in 2004 In a saturated market, the main thrust of Skinner's plan was to shift from acquiring expensive real estate to generating increased sales from existing restaurants In the early 2000s, McD's was opening a new store somewhere in the world every 4.5 hours; under Skinner's watch, the pace slowed to just 50 to 100 new U.S. sites per year To compensate, existing stores started to stay open longer, extending their hours into late night & early morning; by 2007, roughly 40% of McD's' locations were open nonstop Skinner used the money saved on fewer new openings to revamp existing restaurants New look utilized gentler colors, replaced fiberglass & steel chairs with leather seating, eliminated fluorescent lights; added flat-screen TVs, free Wi-Fi, live plants, piped-in music, & possible fireplace; HQ provided grants up to $600,000 per site; some projects cost up to $1.5 million -> $1 billion believing "nicer-looking stores attract more business" Thompson (as COO) spread successful McCafe campaign When Don Thompson became CEO in 2012, most low-hanging fruit had been plucked Struggled with weakening sales under Thompson's reign despite efforts to optimize the menu, improve the customer experience, & make McDonald's more accessible; retired in 2015 Steve Easterbrook was appointed as the CEO of McDonald's in 2015 after turning the UK and European operations into some of the best performing in the company Eaterbrook announced in 2018 McD's would move HQ from Oak Brook, where it resided in custom-built campus for some 4 decades, to Chicago's West Town neighborhood to be closer to the millennials they want as employees and as customers Easterbrook 2015 announced a Turnaround Plan to reset and rebuild the business with 3 priorities: driving operational growth, returning the brand excitement, and unlocking financial value The company started refranchising its operations in an effort to drive more local accountability, ownership, and connection with the customer Also streamlined management structure, flattening the organization Velocity Growth Plan in 2017 focused on the Experience of the Future (EOTF), digital, and delivery Digital: reshaping our interactions with the customer - whether they eat in, take out, drive thru or order delivery Delivery: bringing the McD's experience to more customers - in their homes, their dorm rooms, their workplaces, and beyond Experience of the Future in the US: elevating the customer experience in the restaurants through tech and the restaurant teams who bring it to life This strategic initiative was an aggressive technology upgrade to allow Starbucks-like interactivity to both smooth out operational waiting times and improve the customer experience Initially, franchisees were hesitant to invest the hundreds of thousands of dollars required to upgrade with stand-alone kiosks, but they were bound by stringent franchising contracts and pressure from corporate HQ Initial signs have been promising with 8,500 restaurants outfitted with the EOTF kiosks where customers place orders for themselves In Australia, and several other European markets where labor costs are generally higher than in the US, over 40% of the in-store customers order from the kiosks McDonald's owns and operates its own restaurants, and franchisees them to others Most restaurants are franchised (85%) and McDonald's management has made it clear they expect that percentage to increase to 95% in the coming years 3 primary franchise ownership structures: conventional, developmental license, affiliates Conventional franchisee: company owns the land and building, and leases the location to the franchise, who pays for equipment, signs, seating and décor - As equipment depreciates or new facilities or food preparation processes are required, the franchisee is expected to reinvest in the business - McDonald's co-invests into specific strategic initiatives to motivate franchisees to adopt changes; typical franchisee lease is 20 years - Franchisees pay rent & royalties based on % of sales, with min rent payments & initial fees paid upon opening a new restaurant or acquiring a new franchise Developmental license: McD's doesn't contribute any capital; company receives royalty based on sale - Broader franchising license given to larger organizations who might have the right to develop a specific country, or region of a country Affiliate structure: McD's owns equity in a foreign equity, earns a royalty based on sale (like developmental license), but records its share of net results in Equity of earnings Specific conditions of the franchise agreement vary on the owner's experience, credit capacity, & local legal environment; franchisees can vary in size (1 to 2,200 restaurants) US QSR industry expected to reach 224 billion dollars in 2020 US economy strong despite headwinds such as inverted yield curve and continued Chinese trade tensions More customers are working & have more $ to eat out, but customers with more disposable income are likely to "trade up" to higher quality/priced food options For the first time, American spending on dining exceeded grocery sales in 2015 (due to Millenials who view dining out as a social event and are more willing to pay for food outside of the home) Older consumers spending more on groceries and less on restaurant dining Competition over customer visits heating up in the fast food industry; customer count stays pretty constant but customers may not be visiting McD's as often as they were historically Health concerns threatening Global obesity epidemic costs $2 trillion per year in health care costs; ⅓ of the world is overweight, making obesity the third largest human-caused economic burden Beef is still the highest percent (58%) of meat consumed in the US, but health-conscious consumers are increasingly shifting toward poultry and other lean meats In 2010, to support healthier food choices, Obamacare stipulated that calorie counts must be displayed on all food service menus of chains with at least 20 units and that restaurants must provide additional nutritional info upon request McD's has been sued (unsuccessfully) for making customers fat & was featured in an unflattering documentary (Super Size Me) Recently announced it will stop selling chicken from birds treated with hum antibiotics; Easterbrook also removed high-fructose corn syrup from buns and laid out a 10-year plan to only use suppliers that keep chickens cage free Healthier items -> increased supply costs for restaurants even as customers remain price sensitive In 2018, it announced quarter-pounders would be cooked with fresh beef in all US restaurants Main competition for McD's has traditionally come from other quick-service restaurants like Wendy's, Burger King, & Yum! Brands' Taco Bell; is roughly twice the size of its next largest global competitor (all 3 Yum! Brands combined), but has slightly fewer outlets Controls almost ½ of US hamburger market; 3x larger than Wendy's or BK's market share In 2014, BK merged with Tim Hortons (Canadian chain) to form world's 3rd largest quick- service restaurant chain called Restaurant Brands International (also owns Popeye's; franchises) Wendy's is the third largest US burger chain & strives to differentiate itself as "a cut above" its competitors, with higher-quality food that's made fresh-to-order Easier for Wendy's to implement short-term menu changes (unlike McD's) because it's a smaller chain and has long specialized in custom-building sandwiches without compromising quick service Taco Bell (a division of Yum) is the most widely recognized Tex-Mex option in the quick service restaurant category; rebounded in 2012 after food contamination/quality issues; tries launching 8-10 new items per yr, knowing sales bumps from hits level off within about two years Chick-fil-A is one of the few, large privately held QSR chains; only operates in the US; highest gross sales per store; stores are company-owned with "owner operators" who invest less than a typical McD's or BK Boundaries between quick-service & other restaurant segments have become increasingly blurred Fast-casual restaurants provide high-quality food without table service, in a distinctive atmosphere, at "low enough" prices; one of the few growing areas in restaurant industry due to its successful combo of higher quality and affordable prices Even traditional sit-down restaurants are looking to move into fast-casual arena by offering selected scaled-down dishes that appeal to value-seeking diners Sub-segment of fast-casual restaurant industry is premium burger segment, which grew 10x faster than traditional fast food chains from 2008 through 2013 - Five Guys, In-N-Out Burger, Shake Shack, Smashburger, and Fatburger In 2019, Five Guys claims the title of the fastest-growing restaurant chain in the US; Shake Shack had trading at all-time high with a market cap of $3.5 billion McD's recent efforts to compete in the premium segment have fallen flat (Angus Deluxe) because customers can't justify paying $4-5 when other menu items are a dollar; fast-casuals (Chipotle, Panera, Starbucks) have taken away customers McDonald's expanding into specialty coffee drinks with the McCafé line means that it also competes with more traditional coffee shops such as Starbucks and Dunkin' Donuts Starbucks has added sandwiches, veggies, pizza, alcohol to compete throughout the day Dunkin' Donuts, on the lower price point of the spectrum, continues to expand its warm breakfast options to compete more effectively Market research indicates the typical American dines out about 5 times per week One reason so many quick-service restaurants are focusing on new breakfast items is that the early morning meal is the least saturated Insights from a typical McDonald's franchise in a middle-class suburb of 25,000 residents: - 1,500 people in town visit the local McDonald's over the course of a given day - Breakfast accounts for largest sales proportion (30%), followed by lunch (24%); afternoon, dinnertime, & late night/early morning each account for 15-16% - The noon lunch hour is the busiest and most profitable time of day - Average franchise brings in ~$1.7 mil in annual sales; $150,000 operating profit - 3 main target market segments are mothers, children, and young adults - Moms view McD's as a quick, easy, & affordable meal for families on the go, & they're usually the ones who bring children, but, with 17% of US youth obese, fast food chains find it hard to market to children - In response to parental demands for healthier kid meal options, McD's reduced its Happy Meal calorie count by 20% by adding apples & halving amount of fries - McDonald's has reduced the sodium content of its food by 15%, & plans to make further reductions in calories, sugars, saturated fats, and portion sizes by 2020 - Not enough for a 9-year-old girl who publicly accused the company of tricking kids into eating junk food by using toys and cartoon characters Key demographic group for most fast food restaurants is the heavy users; young, single professionals who earn above-average incomes; frequent a given chain twice or more per week, providing a steady source of sales and profit McD's not in top 10 of 18-32 age group's favorite restaurants; millennials more likely to eat at fast-casual restaurants emphasizing ingredient quality & demonstrate awareness of social issues like environmental sustainability As of 2019, operates 37,000+ restaurants globally with 14,300 of them in the US One of Easterbrook's first major moves was to propose all-day breakfast in all US restaurants, the company's biggest initiative in six years; company had resisted in years past because stores use the same equipment to cook both breakfast and lunch All kitchens are now equipped with separate grills for cooking eggs/burgers, rolling carts & utensils to use just for eggs (to prevent contamination), & new toasters so they can prepare both buns and muffins at the same time (they toast at different temperatures) To make things more manageable, breakfast items will be made continuously during morning, but cooked-to-order during slower parts of the day; extending breakfast hours could increase sales by 2.5% per year Giving franchises more freedom to offer locally relevant menu items (i.e. chorizo burritos more popular in Texas and the Midwest, while mozzarella sticks sell better in NY or NJ) Local restaurant operators can choose items from the company's global pipeline and adjust them as needed to suit local tastes; managers will also be granted more freedom to run their own promotions to increase store traffic As a direct competitive response, McD's experimented with "Create Your own Taste" tablets to design your own sandwich from 30+ choices of meats, toppings, & buns Can only be ordered from inside the restaurant, cost $1.50 more than a Big Mac, and take 7-8 minutes to prepare because the meat is cooked fresh Conundrum for a QSR that generates ~⅔ of its revenue from drive-through customers Franchises were unexcited about the additional cost and complexity; unsurprisingly, this offering was soon discontinued Menu swollen to 120+ items, many of which require specialized equipment and take more time to prepare; greater variety helps draw in new customers but may slow down order process, increase employee stress and customer frustrations Complaints about speed of service has increased recently; "chaotic" Currently piloting meatless burger in Germany Globally known for ubiquity of locations and product consistency, but individual experience not as promising (ie slow drive-thrus) Economist publishes Big Mac Index as proxy for purchasing power parity when comparing the prices of the same burger across countries Has been investing in digital, kiosks, and delivery services Increasing delivery through Uber Eats and now Doordash Digital: as started offering an omni-channel approach, meeting the customers where they want to be served Drive-thru, curb-side delivery, and walk-in Acquired Dynamic Yield, a tech firm specializing in personalizing marketing campaigns EOTF conversions of digital display kiosks allowing for customization; McD's pays for 55% of the cost of the remodel, and initial results are promising Started offering delivery in 2017; lower margin but also incremental sales; expect delivery to be $4 billion business in 2019 for McD's and franchise restaurants Easterbrook wants to improve public perceptions of McD's, which has been targeted & subject to negative press; has declared improving food quality as one of his top priorities Improving food quality by lowering antibiotic use in US chicken & selling dairy products from growth hormone-free cattle; has pledged to examine its ingredients and review food preparation procedures Goal is to become more culinary inspired & simplify food labels by reducing preservative Easterbrook counterattacking McD's' naysayers with a media campaign highlighting positive news about the company's food and workers; launched a video series entitled "Our Food, Your Questions," demonstrating how McDonald's food items are made McDonald's has serious staffing issues to be addressed if it's to improve customer loyalty ⅕ of customer complaints were about rude or unprofessional employees; McD's ranks next to last in friendliness, beating only BK Too many restaurants are understaffed during peak hours; hard to be friendly while work builds & customers grow more irritated at how long it takes to place and get their orders Annual fast food turnover rate is 60%, as frustrated workers move on to less stressful and higher-paying jobs -> McD's pledge to raise pay to at least $1 more per hour than the local minimum wage & granted employees the ability to accrue up to 5 days of paid vacation annually after one year of employment (but this only applies to some stores) Lobbying for pay raise ($15-per-hour minimum) & right to unionize without retaliation Like many US-based global corps, McD's most net-new growth is from international mkts Quick-service-restaurant (QSR) hamburger sales have an annual growth rate of 12-13 percent in China, and 21-22 percent in Russia, for the last 10 years McDonald's has taken a differing approach to these markets In China and Hong Kong, recently sold an 80% stake in their restaurants to Citic (state-owned investment group) & the US private equity firm, Carlyle; looking for these partners to open an additional 1,500 stores in China, Hong Kong, & Korea National Owners Association wrote a tersely worded letter to corporate in 2019 representing franchises arguing about chicken sandwich and Chick-fil-A Easterbrook credited for aggressively investing for future with digital, EOTF, and delivery; net margins up but most of those gains are from increased pricing and cost-reduction (not increased growth) Kempczinski vowed to continue strategic initiatives and must address wider industry challenges, including improving labor relations, increasing demand for healthier food options, an upgraded restaurant and tech experience, and fast delivery (on- and off-site)

McDonald's 3 primary franchise ownership structures

Conventional franchisee: company owns the land and building, and leases the location to the franchise, who pays for equipment, signs, seating and décor; most common - As equipment depreciates or new facilities or food preparation processes are required, the franchisee is expected to reinvest in the business - McDonald's co-invests into specific strategic initiatives to motivate franchisees to adopt changes; typical franchisee lease is 20 years - Franchisees pay rent & royalties based on % of sales, with min rent payments & initial fees paid upon opening a new restaurant or acquiring a new franchise Developmental license: McD's doesn't contribute any capital; company receives royalty based on sale - Broader franchising license given to larger organizations who might have the right to develop a specific country, or region of a country Affiliate structure: McD's owns equity in a foreign equity, earns a royalty based on sale (like developmental license), but records its share of net results in Equity of earnings

Benefits of network effects

Create barriers to exit for existing users and barriers to entry for new companies (build moats) Protect companies from competitors who eat away margin Can help create or tip winner-take-all markets Increases the economic moat (barriers to entry, high switching costs)

High economies of scale, high founder's mentality

Great repeatable models Ideal; mission driven with scale

Technology adoption life cycle

Innovators (technology enthusiasts) Early adopters (visionaries) Early majority (pragmatists) Late majority (conservatives) Laggards (skeptics) When introducing new tech to market, challenging to get interest between early adopters and majority (chasm) People who adopt tech faster and earlier are very different than those who adopt later Shows % of total consumers/customers Dell flips theirs

Low economies of scale, high founder's mentality

Insurgents Companies start here Going to war against industry on behalf of their customers, who have a different value set (i.e. Warby against Luxottica)

Founder's mentality

Insurgents: at war against industry on behalf of dissatisfied customer -> nobler mission, long-term view Owner mindset: cost mentality, everything is your money, biased to action, hatred to bureaucracy, personalization of risk, more likely to pilot a lot then bet on winning proposition (incumbent pilot but don't bet) Frontline obsession: obsessed with talent, customers, advocacy, etc.; translating strategy into frontline behaviors; incumbents rarely mention

Commercialization of a new product or service allows for temporary monopoly profits

Intel commanded premium pricing for their CPU at launch In a similar way, US patents give the inventor exclusive rights for 20 years (utility) or 14 years (design) from the filing date Coca-Cola and Nutella's recipes remain trade secrets (more than 20+ years of value capture)

Innovation

Inventions are not innovation; innovation is the commercialization of ideas and inventions Must be capturing value Once innovation starts creating value, imitators quickly follow Commercialization, delivery, acceptance; experience Sustaining or disrptive Can be by technology, business model, etc. Commercialization of a new product or service allows for temporary monopoly profits

What does Marty Chavez mean by saying "If you can formulate the problem... machines do this very well?" In other words, what's machine learning?

Massive breakthrough in machine learning over last 10 years: machine translation, image detection, voice recognition If you can frame a problem, the machine can do this well: - Large number of training instances (large data sets) - Dichotomize the data (often using humans) - There are multiple techniques (by hook or by crook) Same as 1990s just even larger amounts of power and tools offering new ways ... Machine learning is the ability for a machine, given a question phrased in a certain way (such as yes or no questions), to predict the answer to a set of untrained data based on past trained data Can learn from data, identify patterns, and make decisions with minimal human intervention

Bain: Demystifying Digital Transformation What are the four steps?

It's about technology, but also people Digital strategy = Get started, even if you don't know the end goal - Today forward, future-back (10 years out, and make progress in the general direction) Business model: product, customer experience, economic model, and operational - What's the raw need? Enablers: technology, digital, people, operating model - Get a clear vision on how to inject Orchestration: moving from an experiment to a transformation - Pilot: only best people, unlimited funding, not publicly announced, can use external vendor products - At scale... much tougher ... Tell GS story

Google's success story

Overture pioneered pay per click; Yahoo buys Overture Google adopts similar CPC model (bidding money and ranking) Google becomes search engine for yahoo in 2000 (unbranded) Google runs searches for AOL, myspace.com Google continues to innovate: AdSense, Maps Google is willing to get rid of products that aren't working, cut their losses, and trim their portfolio - I.e. killed their shopping site, Froogle; Orkut popular social media site in Brazil) Google is unafraid to acquire technology (YouTube, Waze, Google Earth, Motorola Mobility, DeepMind) Yahoo famously misses the opportunity to acquire Google in 1997 for $1M

Closing the WeWork problem up (MECE categories & Fishborne Diagram -> sustainable competitive advantage)

Profitability/losses would probably be #1 (how are you going to make money) - Bonds dropping because people think it's junk status and not worth their money - As revenue accelerates, operating losses worsen Governance/management Lease obligations (business model or contracts) Culture Customer

Uber example (taxis vs. limos)

Taxis not disruptive because they didn't find low-end opportunity (would have meant taxi service providers had overshot the needs of a material number of customers by making cabs too plentiful, too easy to use, and too clean) or primarily target nonconsumers (people who found the existing alternatives so expensive or inconvenient that they took public transit or drove themselves instead) Uber has built a position in the mainstream market first and subsequently appealing to historically overlooked segments ... Limos disruptive The company's UberSELECT option provides more-luxurious cars and is typically more expensive than its standard service—but typically less expensive than hiring a traditional limousine UberSELECT currently does not include one defining feature of the leading incumbents in this market: acceptance of advance reservations Should Uber find ways to match or exceed incumbents' performance levels without compromising its cost and price advantage, the company appears to be well positioned to move into the mainstream of the limo business—and it will have done so in classically disruptive fashion

T/F M&A can be a core competency

True... by doing it with some frequency you can get better at it

How did McDonald's gain operational advantages over competitors?

Used efficiency & technological advances (i.e. microwaves)

Early adopters

Visionaries Rare breed to match technology with strategic opportunity Often are new to the executive ranks, eager to make a mark Looking for a breakthrough; order of magnitude (10x) Willing to pay the price for a way to "leapfrog" the competition Access to budgets and able to fund early technology development Easy to sell to, difficult to please; often wants endless customization Market focused; first big customer who write you your first check; clingy (want to cross chasm and move forward) Prominent examples: JFK launching the space program, Steve Jobs with the graphical user interface (GUI) for the Mac, Netflix CEO relying the Amazon cloud for web streaming Risk takers, see emerging technology as strategic opportunity

70-20-10 rule

We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google; this empowers them to be more creative and innovative Many of our significant advances have happened in this manner For example, AdSense for content and Google News were both prototyped in 20% time ... 70% on core work (search, AdWords, AdSense, organizing data) 20% related to core work (complimentary) 10% other

What other areas does Marty think will machine-learning, AI expand in Goldman Sach's business?

Where are the large data sets: yes, even M&A advisory will be impacted Strong limitation: some machine learning techniques don't give the explanation clearly on how they reached the conclusion Not the relationship part of M&A but probably screening targets, understanding potential synergies, what's worked in the past, potential parameters More data -> more use of machine-learning

Bundling and unbundling

Bundle: to combine several products or services for sale as one combined offering or service package - Brings together disparate elements of value, strengthening the core offering through increasing breadth of appeal - Can tip the scales of value to a point where new segments or customers are willing to open their wallets, or can help increase the rate of adoption and loyalty within existing segments - Spotify (i.e. with Hulu), Microsoft Office Unbundle: to break up packages once offered by providing particular parts of them at a scale and cost unmatchable in the established order - Purchasing singles on iTunes, Netflix changing the industry from buying channels to just certain shows

First strategic inflection point

Inflection point #1: getting out of DRAM business; when Andy Grove and Gordon Moore decided to exit DRAMs Grove: "If we got kicked out and the board brought in a new CEO, what do you think we would do?" Moore: "He would get us out of memories" Grove: "Why shouldn't you and I walk out the door, and come back and do it ourselves?" Have to be brave, recognize sunk costs, hard to let go, takes leadership, high FC industry makes it difficult

Assessing AT&T / Time Warner deal (based on ways to add value)

Buy cheap: no one thinks Time Warner was a bargain, not at roughly 35% above its trading price Run better: no one, including AT&T itself, argues that the company can better manage Time Warner's assets Get market power: no one believes in the potential for market power here; that applies to horizontal mergers, not vertical ones Exploit synergies: gain access to great content? Differentiate wireless service with content? Rejuvenate the core business? Improve the "dumb" pipes? The battle for leadership in consumer video - the real game being played - isn't between traditional content owners (Hollywood studios) and distributors (cable, satellite, and wireless operators) anymore; it's between those organizations and tech companies

Vertical integration (reading notes)

Conglomerate integration: the integration of two organizations that are in completely different lines of business The idea of vertical integration was taken a step further by Dell Computer, one of the most successful companies of the 1990s Michael Dell said he combined the traditional vertical integration of the supply chain with the special characteristics of the virtual organization to create "virtual integration" Dell assembles computers from other firms' parts, but it has relationships with those firms that are more binding than the traditional links between buyer and supplier; it doesn't own them in the way of the vertically integrated firm, but through exchanges of information and a variety of loose associations it achieves much the same aim—what Michael Dell calls "a tightly coordinated supply chain" The vertically integrated giants of the computer industry (i.e. IBM, Digital, Burroughs) were felled like young saplings when at the end of the 1970s Apple formed a network of independent specialists that produced machines far more efficiently than the do-it-all giants

Sustaining vs. disruptive innovation

Sustaining: companies serving their best, most profitable customers by giving them bigger and better features; hire MBAs and find most profitable customers to sell more to; i.e. Luxottica with Gucci; overshooting the market (3D, 4K TVs with curves and large screen); start doing too much and adding too many things; add buttons to remote Disruptive: entrants (typically smaller) who attack incumbents on the low end of the market (i.e. Korean cars in 1980s Hyundai and Kia attacking established Japenese market by cheaper, less-quality; Warby Parker takes gap left by Luxottica offering quality, consistent glasses that make you feel good because of cause while letting you buy 3 price for reasonable price); incumbents believe value proposition will always be the same (yet customers do change); Southwest; takes time but they get better at what they do and can even make it high end and expensive (like Honda motorcycles)

What's WeWork's business model?

Taking long-term leases, then renting out space-as-a-service Making it an experience (not just space) 10-15 year leases and rent out monthly Fractionalizing lease, chopping it into pieces, and offering them to other people -> risky Low switching costs for customers creates high risk (trying to lock into one year membership to increase switching costs) Huge fixed costs; need to have super high utilization Put a lot of money in then make money from a lot of people a little bit at a time with the option of them now renewing ... Purchases real estate space (sometimes just a floor or two in an office building) and transforms it into smaller offices and common areas; rents desks to individuals or groups who want the benefits of a fully stocked office without the expense of a full office

Google was "attacking the magic" and traditional media was not happy

When Viacom was visiting Google and learned how Google was automating the advertising process, the head of Viacom said, "you are ****ing with the magic of advertising" Since Google's birth in 1998, Eric Schmidt acknowledges that Google has set out to systematically attack the magic; "If Google makes the market more efficient, that's a good thing" Google poses as analytical question (ad that is clicked on and gets people to spend more is better) ... John Wannamaker: "Half of the money I sped on advertising is wasted, the problem is that I don't know which half"

Potential Tide interaction among Product (GBU) and Country (SMO) and GBS (conflicts)

Constructive tension could be good (conflict, control) GBU (product) recommends $2 / liter MDO (Germany) says we should price at $1.6 / liter (Germans expect lower price) and if we want to do $2 / liter we need changes (packaging, water preferences) GBS (shared services) may get involved and all three functions go back and forth ... GBU argues for more product, varieties, sizes, etc. while SMO and GBS say it won't work need standard

Commander's intent

Everyone needs to know what the objective is and what success looks like - Strategy is useless without implementation - Remember, "the enemy gets a vote" - This allows flexibility, creativity, and Honda (B) entrepreneurship Allows people to know what they need to get done and ability to improvise; need to know where you're headed, what's allowed, and have creativity ... Idea that the world is volatile (VUCA: volatile, uncertainty, complexity, ambiguity) No matter how good of a Honda A strategic plan you come up with, things will mess up Instead of giving all of your military soldier's a 300 page PowerPoint, need to tell them where they need to be tomorrow (top of the hill) -- objective (what you're trying to do) and give them tools on how to get it done With Narayana, Dr. Shetty has a clear mission of what they're tying to do; day to day, crazy things will happen, but ability to be flexible and let people do their jobs is critical

McDonald's today

Menu swollen to 120+ items; greater variety helps draw in new customers but may slow down order process, increase employee stress and customer frustrations Complaints about speed of service have increased Globally known for ubiquity of locations and product consistency, but individual experience not as promising (ie slow drive-thrus) Has been investing in digital, kiosks, and delivery services Digital: as started offering an omni-channel approach, meeting the customers where they want to be served (drive-thru, curb-side delivery, and walk-in) EOTF conversions of digital display kiosks allowing for customization; McD's pays for 55% of the cost of the remodel, and initial results are promising Started offering delivery in 2017 and is increasing Improving food quality Has serious staffing issues to be addressed; customer complaints about rude or unprofessional employees Too many restaurants are understaffed during peak hours Pledged to pay to at least $1 more per hour than the local minimum wage & granted employees the ability to accrue 5 days of paid vacation annually after one year of employment (but this only applies to some stores) Most net-new growth is from international mkts Has taken a differing approach to these markets National Owners Association wrote a tersely worded letter to corporate in 2019 representing franchises arguing about chicken sandwich and Chick-fil-A

Operations economies of scale

Optimizing operational functions - Reducing the number and diversity of suppliers - Standardizing and optimizing technology - Centralizing services - Consolidating business functions - Standardizing processes - Pooling competencies to support care delivery Buyer power, working with suppliers, telemedicine (work remotely), raising funds

Porter's 3 premises

Competition occurs at the business level; diversified companies do not compete (only their BUs do) Diversification inevitably adds costs and constraints to business units Shareholders can readily diversify themselves

Why did IBM choose open standards?

IBM felt pressured by Apple's initial success IBM believed customers would purchase because of IBM brand Wanted product to become PC standard - Network effects; value of product grows by more people using it - Economies of scale; lower costs from greater production level IBM gave away the most valuable parts of the PC (negative) - Microprocessor (CPU) to Intel - Operating system to Microsoft Easy to switch for consumers; lets companies grow faster (thought IBM brand would grow)

WeWork Investors Turned Off by 'Sloppy' IPO Filings (in-class article)

The more investors learned about WeWork, the less they liked it The details that were wrong or omitted from its financial disclosures played a part in weakening investor appetite and will pose risks if the company ever tries to go public again WeWork parent We Co. misstated the number and cost of the working desks it set up in the first half of the year when it first filed in August to go public The company also omitted information about its governance, including that its then-Chief Executive Adam Neumann had been on the board's compensation committee "Their whole approach is at best sloppy, because a lot of the important numbers don't tick and tie, and at worst it could be obfuscation" The We Co.'s IPO is now postponed after the company announced it would withdraw its request to go public We canceled its IPO last month after concerns grew among potential investors about its finances and Mr. Neumann's behavior—leading existing investors to force him out as CEO We had been valued at $47 billion earlier this year but in the weeks before the scheduled IPO last month, investors scrutinized the company's financial filings and grew skeptical of We's business and its governance The company lowered its expected valuation to between $15 billion and $20 billion before pulling the offering With the IPO shelved, We's incomplete financial data makes it harder to assess the company's prospects as it tries to adapt to a future without an expected injection of $9 billion from the IPO and bank lending tied to the offering The information gaps in the prospectus also mean New York-based We likely faces tougher scrutiny by the Securities and Exchange Commission, should the company—as it says it intends—try to go public again in the future A spokeswoman for Mr. Neumann said the prospectus was "prepared and carefully reviewed by experienced outside counsel...the company hired the best lawyers and bankers in the world to manage the filing" She added that "as is often the case, Adam, as the CEO, had many comments on particular drafts" The document leaves unanswered some basic questions about the company's finances; for example: How many new workstations did We deliver in the first half of this year? The prospectus filed in August said 273,000, but, barely a month later, an amended version said 106,000 What was the total gross cost? In August, We said $1.3 billion In September: $800 million The reason for the dramatic changes is that the first version was wrong, people familiar with the matter said Several metrics that analysts and investors said were crucial to assessing how the company's breakneck growth is affecting its profitability and cash burn weren't disclosed in the prospectus For example: What does it take for an individual location to be profitable? How much future revenue is the company committed to sharing with landlords? The prospectus makes no mention of the company's Gulfstream G650ER, a top-of-the-line private jet it bought last year for more than $60 million, which The Wall Street Journal has reported is now slated for the auction block There is also "no disclosure to the effect that if the IPO doesn't go through, the company is in trouble," said Sandra Peters, head of financial-reporting policy for the CFA Institute, a Charlottesville, Va.-based association that represents chartered financial analysts We expected its IPO would raise at least $3 billion and unlock a further $6 billion in bank financing Now, the company is bleeding cash and anticipates difficult decisions ahead, the Journal has reported It isn't only the financial picture that is incomplete in the prospectus There is no mention that Mr. Neumann sold hundreds of millions of dollars of stock since WeWork was formed in 2010, as the Journal has reported Under SEC rules, a prospectus doesn't necessarily have to disclose stock sales by executives "But the market doesn't respond well to being surprised about these sorts of transactions," Mr. Gerding said. The document also wasn't clear on some important governance issues A draft prospectus filed last year said Mr. Neumann was on the We compensation committee in 2017, meaning he would have a say in his own compensation The August prospectus never stated that Mr. Neumann was on the committee in 2018 The only disclosure about whether any We executive served on the compensation committee was a line referring to boards of companies associated with We The filing said that no executive served on the compensation committee "of any entity that has one or more executive officers who served on our board of directors ... during the year ended December 31, 2018" Mr. Neumann was on the committee last year, according to people familiar with the matter

What Is Disruptive Innovation? (reading notes)

The ideas summed up in the phrase "disruptive innovation" have become a powerful part of business thinking—but they're in danger of losing their usefulness because they've been misunderstood and misapplied The leading authorities on disruptive innovation revisit the central tenets of disruption theory, its development over the past 20 years, and its limitations Does it matter whether Uber, say, is a disruptive innovation or something else entirely? It does: We can't manage innovation effectively if we don't grasp its true nature Proven to be a powerful way of thinking about innovation-driven growth Many leaders of small, entrepreneurial companies praise it as their guiding star; so do many executives at large, well-established organizations (i.e. Intel) It's now in danger of becoming a victim of its own success Despite broad dissemination, the theory's core concepts have been widely misunderstood and its basic tenets frequently misapplied Furthermore, essential refinements in the theory over the past 20 years appear to have been overshadowed by the popularity of the initial formulation As a result, the theory is sometimes criticized for shortcomings that have already been addressed Too many people who speak of "disruption" have not read seriously on the subject Too frequently, they use the term loosely to invoke the concept of innovation in support of whatever it is they wish to do Many researchers, writers, and consultants use "disruptive innovation" to describe any situation in which an industry is shaken up and previously successful incumbents stumble, but that's much too broad a usage Different types of innovation require different strategic approaches The lessons we've learned about succeeding as a disruptive innovator (or defending against a disruptive challenger) will not apply to every company in a shifting market If we get sloppy with our labels or fail to integrate insights from subsequent research and experience into the original theory, then managers may end up using the wrong tools for their context, reducing their chances of success; over time, the theory's usefulness will be undermined Disruption: a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality— frequently at a lower price Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously Entrants then move upmarket, delivering the performance that incumbents' mainstream customers require, while preserving the advantages that drove their early success When mainstream customers start adopting the entrants' offerings in volume, disruption has occurred As incumbent companies introduce higher-quality products or services to satisfy the high end of the market (where profitability is highest), they overshoot the needs of low-end customers and many mainstream customers -> opening for entrants to find footholds in the less-profitable segments that incumbents are neglecting Entrants on a disruptive trajectory improve the performance of their offerings and move upmarket (where profitability is highest for them, too) and challenge the dominance of the incumbents Uber has enjoyed fantastic growth, reported tremendous financial success, and spawned a slew of imitators; however, the theory indicates it is not disrupting the taxi business (only influencing it) Uber's financial and strategic achievements do not qualify the company as genuinely disruptive; although the company is almost always described that way Disruptive innovations originate in low-end or new-market footholds Low-end footholds exist because incumbents typically try to provide their most profitable and demanding customers with ever-improving products and services, and they pay less attention to less-demanding customers It is difficult to claim that the company found a low-end opportunity: that would have meant taxi service providers had overshot the needs of a material number of customers by making cabs too plentiful, too easy to use, and too clean In the case of new-market footholds, disrupters create a market where none existed; they find a way to turn nonconsumers into consumers In the early days of photocopying technology, Xerox targeted large corporations and charged high prices in order to provide the performance that those customers required -> school librarians, bowling-league operators, and other small customers were priced out of the market and made do with carbon paper or mimeograph machines -> new challengers introduced personal copiers, offering an affordable solution to individuals and small organizations—and a new market was created Neither did Uber primarily target nonconsumers— people who found the existing alternatives so expensive or inconvenient that they took public transit or drove themselves instead - Uber was launched in San Francisco (a well-served taxi market), and Uber's customers were generally people already in the habit of hiring rides Uber has quite arguably been increasing total demand, but disrupters start by appealing to low-end or unserved consumers and then migrate to the mainstream market Uber has gone in exactly the opposite direction: building a position in the mainstream market first and subsequently appealing to historically overlooked segments Disruptive innovations don't catch on with mainstream customers until quality catches up to their standards Most of the elements of Uber's strategy seem to be sustaining innovations (making good products better in the eyes of an incumbent's existing customers: the fifth blade in a razor, the clearer TV picture, better mobile phone reception) Uber's service has rarely been described as inferior to existing taxis; many would say it is better As is typical when incumbents face threats from sustaining innovations, many taxi companies are motivated to respond (i.e. developing hailing apps and contesting the legality of some of Uber's service) These improvements can be incremental advances or major breakthroughs, but they all enable firms to sell more products to their most profitable customers Disruptive innovations are initially considered inferior by most of an incumbent's customers Typically, customers are not willing to switch to the new offering merely because it is less expensive; instead, they wait until its quality rises enough to satisfy them and then adopt the new product and happily accept its lower price (how disruption drives prices down in a market) Applying the theory correctly is essential to realizing its benefits (i.e. small competitors nibbling away at the periphery of your business very likely should be ignored; unless they are on a disruptive trajectory, in which case they are a potentially mortal threat) Disruption is a process The term "disruptive innovation" is misleading when it is used to refer to a product or service at one fixed point, rather than to the evolution of that product or service over time The first minicomputers were disruptive not merely because they were low-end upstarts when they appeared on the scene, nor because they were later heralded as superior to mainframes in many markets; they were disruptive by virtue of the path they followed from the fringe to the mainstream Most every innovation, disruptive or not, begins life as a small-scale experiment Disrupters tend to focus on getting the business model, rather than merely the product, just right; when they succeed, their movement from the fringe (the low end of the market or a new market) to the mainstream erodes first the incumbents' market share and then their profitability The fact that disruption can take time helps to explain why incumbents frequently overlook disruptors (i.e. Blockbuster and Netflix) When Netflix launched, in 1997, its initial service wasn't appealing to most of Blockbuster's customers, who rented movies (typically new releases) on impulse Netflix had an exclusively online interface and a large inventory of movies, but delivery through the U.S. mail meant selections took several days to arrive The service appealed to only a few customer groups—movie buffs who didn't care about new releases, early adopters of DVD players, and online shoppers If Netflix had not eventually begun to serve a broader segment of the market, Blockbuster's decision to ignore this competitor would not have been a strategic blunder However, as new technologies allowed Netflix to shift to streaming video over the internet, the company did eventually become appealing to Blockbuster's core customers, offering a wider selection of content with an all-you-can-watch, on demand, low-price, high-quality, highly convenient approach; got there via a classically disruptive path If Netflix (like Uber) had begun by launching a service targeted at a larger competitor's core market, Blockbuster's response would very likely have been a vigorous and perhaps successful counterattack; but failing to respond effectively to the trajectory that Netflix was on led Blockbuster to collapse Disrupters often build business models that are very different from those of incumbents General practitioners operating out of their offices often rely on their years of experience and on test results to interpret patients' symptoms, make diagnoses, and prescribe treatment ("solution shop" business model); in contrast, a number of convenient care clinics are taking a disruptive path by using what we call a "process" business model -- they follow standardized protocols to diagnose and treat a small but increasing number of disorders The product that Apple debuted in 2007 was a sustaining innovation in the smartphone market: it targeted the same customers coveted by incumbents, and its initial success is likely explained by product superiority; the iPhone's subsequent growth is better explained by disruption—not of other smartphones but of the laptop as the primary access point to the internet Some disruptive innovations succeed; some don't Not every disruptive path leads to a triumph, and not every triumphant newcomer follows a disruptive path The failures are not evidence of the deficiencies of disruption theory; they are simply boundary markers for the theory's application The theory says very little about how to win in the foothold market, other than to play the odds and avoid head-on competition with better-resourced incumbent The mantra "Disrupt or be disrupted" can misguide us Incumbent companies do need to respond to disruption if it's occurring, but they should not overreact by dismantling a still profitable business; instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations In addition, they can create a new division focused solely on the growth opportunities that arise from the disruption When new technology is developed, disruption theory does not dictate what managers should do; instead it helps them make a strategic choice between taking a sustaining path and taking a disruptive one In addition, they can create a new division focused solely on the growth opportunities that arise from the disruption Of course, as the disruptive stand-alone business grows, it may eventually steal customers from the core, but corporate leaders should not try to solve this problem before it is a problem The data supports the theory's prediction that entrants pursuing a sustaining strategy for a standalone business will face steep odds: In Christensen's The theory of disruption predicts that when an entrant tackles incumbent competitors head-on, offering better products or services, the incumbents will accelerate their innovations to defend their business Either they will beat back the entrant by offering even better services or products at comparable prices, or one of them will acquire the entrant Uber is in a unique situation relative to taxis: It can offer better quality and the competition will find it hard to respond, at least in the short term The limousine or "black car" business is a different story, and here Uber is far more likely to be on a disruptive path The company's UberSELECT option provides more-luxurious cars and is typically more expensive than its standard service—but typically less expensive than hiring a traditional limousine UberSELECT currently does not include one defining feature of the leading incumbents in this market: acceptance of advance reservations Incumbents (sensibly) listen to their existing customers and concentrate on sustaining innovations as a result Incumbents' focus on their existing customers becomes institutionalized in internal processes that make it difficult for even senior managers to shift investment to disruptive innovations Should Uber find ways to match or exceed incumbents' performance levels without compromising its cost and price advantage, the company appears to be well positioned to move into the mainstream of the limo business—and it will have done so in classically disruptive fashion Initially, the theory of disruptive innovation was simply a statement about correlation; empirical findings showed that incumbents outperformed entrants in a sustaining innovation context but underperformed in a disruptive innovation context Incumbents (sensibly) listen to their existing customers and concentrate on sustaining innovations as a result Incumbents' focus on their existing customers becomes institutionalized in internal processes that make it difficult for even senior managers to shift investment to disruptive innovations Very often, low-end and new-market footholds are populated not by a lone would-be disrupter, but by several comparable entrant firms whose products are simpler, more convenient, or less costly than those sold by incumbents The incumbents provide a de facto price umbrella, allowing many of the entrants to enjoy profitable growth within the foothold market, but that lasts only for a time As incumbents (rationally, but mistakenly) cede the foothold market, they effectively remove the price umbrella, and price-based competition among the entrants reigns Some entrants will founder, but the smart ones—the true disrupters—will improve their products and drive upmarket, where, once again, they can compete at the margin against higher-cost established competitor The disruptive effect drives every competitor— incumbent and entrant—upmarket. Resource allocation processes prioritized sustaining innovations (which had high margins and targeted large markets with well-known customers) while inadvertently starving disruptive innovations (meant for smaller markets with poorly defined customers) The disruptive effect drives every competitor— incumbent and entrant—upmarket Originally assumed that any disruptive innovation took root in the lowest tiers of an established market— yet sometimes new entrants seemed to be competing in entirely new market Low-end disrupters (steel minimills and discount retailers) come in at the bottom of the market and take hold within an existing value network before moving upmarket and attacking that stratum (integrated steel mills and traditional retailers) By contrast, new-market disruptions take hold in a completely new value network and appeal to customers who have previously gone without the product New-market disruptions take hold in a completely new value network and appeal to customers who have previously gone without the product The question now is whether there is a novel technology or business model that allows new entrants to move upmarket without emulating the incumbents' high costs—that is, to follow a disruptive path; the answer seems to be yes, and the enabling innovation is online learning, which is becoming broadly available Real tuition for online courses is falling, and accessibility and quality are improving. Innovators are making inroads into the mainstream market at a stunning pace Understanding what drives the rate of disruption is helpful for predicting outcomes, but it doesn't alter the way disruptions should be managed It is a mistake to assume that the strategies adopted by some high-profile entrants constitute a special kind of disruption; often these are simply miscategorized (i.e. Tesla) Believe companies should create a separate division that operates under the protection of senior leadership to explore and exploit a new disruptive model; sometimes works and sometimes it doesn't In certain cases, a failed response to a disruptive threat cannot be attributed to a lack of understanding, insufficient executive attention, or inadequate financial investment The challenges that arise from being an incumbent and an entrant simultaneously have yet to be fully specified; how best to meet those challenges is still to be discovered Disruption theory does not, and never will, explain everything about innovation specifically or business success generally; far too many other forces are in play Empirical tests show that using disruptive theory makes us measurably and significantly more accurate in our predictions of which fledgling businesses will succeed

What industry does WeWork compete in?

Office (not residential, manufacturing, apartment, industrial, etc.)

Dell's business model

Direct-to-consumer for make-to-order (MTO) products MTO: you order then company builds, reduces finished goods inventory; like Warby Parker; negative accounts receivable (already paid Dell, they haven't made it yet; sell stuff before delivery) Built-to-stock (BTS): able to buy it right then and there; Home Depot & Bed Bath and Beyond build products to put them on shelf; opposite of MTO Direct-to-consumer: don't have distributors taking anything away; can determine what customers like and don't and assess WTP; get information and understand market pulse (especially important for Dell launching pre-Internet days); some online businesses able to successfully open stores with info generated

Puzzle Pieces the Size of Houses (in-class video)

Factories roughly 4 football fields and putting house-sized equipment in them Decide where the tools go in building; have to be plus or minus an eighth of an inch (otherwise every tool is off) Everything must fit; so precise it's like little puzzle pieces Wafers used to be 6 inches, then 8, now 12 which is better because you can get more chips onto pancake Too heavy to carry and expensive to drop Had to wait 20 years to make larger wafers because making even one is difficult; have to perfect making smaller pancakes before you can make large

Who are WeWork's customers?

People who don't want to commit to a 7 year office (long-term lease) Don't mind sharing offices with other people (co-location) Want flexibility to grow or not grow Used to target smaller companies and start ups; now have whole floors and getting more enterprise/larger clients Some limitations (i.e. hospitals wouldn't want to share space) Used to be more B2C individuals but now actual groups of people (more B2B)

Describe how semiconductors are made

Semiconductors are made out of sand (silicon); melt down fancy sand into block -> cut blocks into wafer (pancake) -> smooth out the pancake -> use light to create pattern on wafer -> create highway system of electrons through hundreds of addition/removal steps -> have millions of intersections/transistors on one chip, with hundreds of chips on one wafer -> stick in chip set into mother board

Examples of vertical integration

A food manufacturer merges with a chain of supermarkets Coca-Cola buying bottlers in 2010 Warby Parker (design -> process materials -> manufacturing -> marketing them) Hospitals buying physician practices Sandlands buying the factory to be closer to the customer, go more direct-to-consumer

Moore's Law (summary)

Gordon Moore accurately forecasted that computing power would approximately double every 24 months 50+ years; technology continually more powerful and cheaper

How does Dell's method differ from straight outsourcing

Quality: set service level agreements (SLA; quality you will provide in product, deliver, volume, etc.) Information: build data linkages; free flow of information; need trust (share info) Purchase agreements: 25% of Dell's next year production (Dell would buy fixed % of next year's production; want some guarantee you won't be abandoned) Partners: optimize (fewer the better) the number of (strategic) partners

If Moore's law applied to cars, real estate, space, air travel

Cars: If automobile fuel efficiency improved at the pace of Moore's Law, a person could easily drive a car for his entire life on a single tank of gas; with the pace at which transistors have shrunk, your car would be the size of an ant Real estate: If house prices fell at the same rate as transistors, a person could purchase a home for the price of a piece of candy Space Exploration: The trip to the Moon in 1969 took three days; if Moore's Law applied to space travel, that trip would now take one minute Air travel: A flight from New Zealand to New York would be over in the time it takes to fasten your seat belt, if Moore's Law were operative

Intel's resources and capabilities

Resources: location, human capital, patents, technology Capabilities: sales & marketing, HR management, legal acumen, new product design

Geoffery Moore

"Old school" authority on technology B2B marketing Until recently, technology was largely a B2B discussion; now, B2C and C2C technology dominates the news, but the same concepts of word-of-mouth marketing still exist Crossing the chasm

Chavez's view on the mission of the trading business

"Serve clients, assess value, build scale" Focus on the relationship, not the transaction itself I.e. what if a search engine company was run like a Wall Street trading firm, where you called someone for a search term?"

Competition occurs at the business level; diversified companies do not compete

BUs compete, NOT diversified conglomerates, even if there are benefits with unified brand Phillips competes against GE and Siemens on imaging medical equipment while competing against Gilette with oral care GE also competes against Rolls-Royce with jet engines Siemens also competes against ABB with smart infrastructure

From Competitive Advantage to Corporate Strategy

Corporate strategy: the overall plan for a diversified company CEOs have been obsessed with diversification since the early 1960s, but almost no consensus exists about what corporate strategy is, much less about how a company should formulate it A diversified company has 2 levels of strategy: BU/corp Business unit (or competitive) strategy: concerns how to create competitive advantage in each of the businesses in which a company competes Corporate (or companywide) strategy: concerns two different questions -- what businesses the corporation should be in and how the corporate office should manage the array of business units - What makes the corporate whole add up to more than the sum of its business unit parts The track record has been dismal; the corporate strategies of most companies have dissipated instead of created shareholder value To survive, companies must understand what good corporate strategy is The need to rethink corporate strategy could hardly be more urgent; by taking over companies and breaking them up, corporate raiders thrive on failed corporate strategy Fueled by junk bond financing and growing acceptability, raiders can expose any company to takeover, no matter how large or blue chip Recognizing past diversification mistakes, some companies have initiated large-scale restructuring programs; others have done nothing at all Those who have restructured must decide what to do next to avoid repeating the past; those who have done nothing must awake to their vulnerability While there is disquiet about the success of corporate strategies, none of the available evidence satisfactorily indicates the success or failure of corporate strategy Most studies have approached the question by measuring the stock market valuation of mergers, captured in the movement of the stock prices of acquiring companies immediately before and after mergers are announced Show the market values mergers as neutral or slightly negative, hardly cause for serious concern; yet short-term market reaction is a highly imperfect measure of the long-term success of diversification Studying the diversification programs of a company over a long period of time is a much more telling way to determine whether a corporate strategy has succeeded or failed Each company entered an average of 80 new industries and 27 new fields Just over 70% of new entries were acquisitions, 22% start-ups, & 8% joint venture On average corporations divested more than half their acquisitions in new industries and more than 60% of their acquisitions in entirely new fields 14 companies left more than 70% of all the acquisitions they had made in new fields; track record in unrelated acquisitions is even worse as average divestment rate is a startling 74% Even a respected company like GE divested a high % of its acquisitions While companies near the top of the list have above-average shareholder returns, returns are not a reliable measure of diversification success Data give a stark indication of the failure of corporate strategies; only the lawyers, investment bankers, and original sellers have prospered in most of these acquisitions, not the shareholders Premises of corporate strategy: - Competition occurs at the BU level: diversified companies don't compete; only their business units do; unless a corp strategy places primary attention on nurturing the success of each unit, the strategy will fail, no matter how elegantly constructed; successful corp strategy must grow out of & reinforce competitive strategy - Diversification inevitably adds costs and constraints to business units: obvious costs such as corporate overhead allocated to a unit may not be as important or subtle as the hidden costs and constraints; a business unit must explain its decisions to top management, spend time complying with planning and other corporate systems, live with parent company guidelines and personnel policies, and forgo the opportunity to motivate employees with direct equity ownership; costs & constraints can be reduced but not eliminated - Shareholders can readily diversify themselves: can diversify own portfolios of stocks by selecting those that best match their preferences and risk profiles; often diversify more cheaply than a corporation because they can buy shares at the market price and avoid hefty acquisition premiums Corporate strategy cannot succeed unless it truly adds value—to business units by providing tangible benefits that offset the inherent costs of lost independence and to shareholders by diversifying in a way they could not replicate Studied 33 random large diversified U.S. companies The attractiveness test: the industries chosen for diversification must be structurally attractive or capable of being made attractive In the long run, the rate of return available from competing in an industry is a function of its underlying structure An attractive industry with a high average return on investment will be difficult to enter because of high entry barriers, modest supplier and buyer bargaining power, few substitute products or services, and stable rivalry among competitors An unattractive industry like steel will have structural flaws, including a plethora of substitute materials, powerful/price-sensitive buyers, and excessive rivalry due to high FC and a large group of competitors, many of whom are state supported Diversification cannot create shareholder value unless new industries have favorable structures that support returns exceeding the cost of capital; otherwise the company must be able to restructure the industry or gain a sustainable competitive advantage that leads to returns well above the industry average An industry need not be attractive before diversification A company might benefit from entering before the industry shows its full potential; the diversification can then transform the industry's structure Companies can suspend the test because they have a vague belief that the industry "fit" very closely with their own businesses -> hope that the corporate "comfort" they feel would lead to a happy outcome -> the companies ignored fundamentally poor industry structures Unless the close fit allows substantial competitive advantage, such comfort will turn into pain when diversification results in poor return Common reason for ignoring the attractiveness test is a low entry cost Even with low price, one-shot gain won't offset perpetually poor business Almost always, the company finds it must reinvest in the newly acquired unit, if only to replace fixed assets and fund working capital Diversifying companies are also prone to use rapid growth or other simple indicators as a proxy for a target industry's attractiveness Many that rushed into fast-growing industries (PCs, video games, robotics) were burned because they mistook early growth for long-term profit potential Industries are profitable not because they are sexy or high tech; they are profitable only if their structures are attractive The cost-of-entry test: the cost of entry must not capitalize all the future profits Diversification can't build shareholder value if the cost of entry into a new business eats up expected returns, but strong market forces work to do that A company can enter new industries by acquisition or start-up Acquisitions expose it to an increasingly efficient merger market; an acquirer beats the market if it pays a price not fully reflecting the new unit's prospects Yet multiple bidders are commonplace, information flows rapidly, and investment bankers and other intermediaries work aggressively to make the market as efficient as possible Acquisition premiums are high and reflect future prospects In recent years, new financial instruments such as junk bonds have brought new buyers into the market and made even large companies vulnerable to takeover In a start-up, the company must overcome entry barriers; bearing the full cost of the entry barriers might well dissipate any potential profits The better-off test: either the new unit must gain competitive advantage from its link with the corporation or vice versa A corporation must bring some significant competitive advantage to the new unit, or the new unit must offer potential for significant advantage to the corp Sometimes, the benefits to the new unit accrue only once, near the time of entry, when the parent instigates a major overhaul of its strategy or installs a first-rate management team When the benefit to the new unit comes only once, the parent company has no rationale for holding the new unit in its portfolio over the long term Other diversification yields ongoing competitive advantage if the new unit can market its product through the well-developed distribution system of its sister units, for instance Once the results of the one-time improvement are clear, the diversified company no longer adds value to offset the inevitable costs imposed on the unit; it is best to sell the unit and free up corporate resources Diversification of risk should only be a by-product of corporate strategy, not a prime motivator Executives confuse company size with shareholder value; such thinking misses the whole point of diversification, which is to create shareholder value rather than to avoid destroying it The three tests for successful diversification set the standards that any corporate strategy must meet; meeting them is so difficult that most diversification fails Many companies lack a clear concept of corporate strategy to guide their diversification or pursue a concept that does not address the tests; others fail because they implement a strategy poorly Four concepts of corporate strategy that have been put into practice—portfolio management, restructuring, transferring skills, and sharing activities The concept of corporate strategy most in use is portfolio management, which is based primarily on diversification through acquisition The corporation acquires sound, attractive companies with competent managers who agree to stay on While acquired units do not have to be in the same industries as existing units, the best portfolio managers generally limit their range of businesses in some way, in part to limit the specific expertise needed by top management The acquired units are autonomous, and the teams that run them are compensated according to the unit results. The corporation supplies capital and works with each to infuse it with professional management techniques Top management provides objective/dispassionate review of BU results Portfolio managers categorize units by potential and regularly transfer resources from units that generate cash to those with high potential and cash needs In a portfolio strategy, the corporation seeks to create shareholder value in many ways It uses its expertise & analytical resources to spot attractive acquisition candidates that the individual shareholder could not Provides capital on favorable terms that reflect corporatewide fundraising ability Introduces professional management skills and discipline Provides high-quality review and coaching, unencumbered by conventional wisdom or emotional attachments to the business The logic of the portfolio management concept rests on a number of vital assumptions. If a company's diversification plan is to meet the attractiveness and cost-of-entry test, it must find good but undervalued companies Acquired companies must be truly undervalued because the parent does little for the new unit once it is acquired To meet the better-off test, the benefits the corporation provides must yield a significant competitive advantage to acquired units The style of operating through highly autonomous business units must both develop sound business strategies and motivate managers. With increasingly well-developed capital markets, the days when portfolio management was a valid concept of corporate strategy are past; attractive companies with good managements show up on everyone's screen and attract top $ in acquisition premium Simply contributing capital isn't contributing much A sound strategy can easily be funded; small to medium-size companies don't need a munificent parent The benefit of giving business units complete autonomy is questionable; increasingly, a company's business units are interrelated, drawn together by new technology, broadening distribution channels, and changing regulations Setting strategies of units independently may well undermine unit performance As the size of the company grows, portfolio managers need to find more and more deals just to maintain growth; supervising many units -> mistakes In developing countries, where large companies are few, capital markets are undeveloped, and professional management is scarce, portfolio management still works But it is no longer a valid model for corporate strategy in advanced economies, though still in UK Portfolio management is no way to conduct corporate strategy Unlike its passive role as a portfolio manager, when it serves as banker and reviewer, a company that bases its strategy on restructuring becomes an active restructurer of business units (i.e. Hanson Trust) The restructuring strategy seeks out undeveloped, sick, or threatened organizations or industries on the threshold of significant change The parent intervenes, frequently changing the unit management team, shifting strategy, or infusing new tech; then it may make follow-up acquisitions to build a critical mass and sell off unneeded or unconnected parts thereby reducing the effective acquisition cost -> strengthened company or a transformed industry When well implemented, the restructuring concept is sound, for it passes the three tests of successful diversification The restructurer meets the cost-of-entry test through the types of company it acquires Some restructuring companies are Loew's, BTR, and General Cinema To work, the restructuring strategy requires a corporate management team with the insight to spot undervalued companies or positions in industries ripe for transformation Unless they can integrate the acquisitions to create a whole new strategic position, they are just portfolio managers in disguise Pitfall: hard to dispose of BUs once they are restructured and performing well Human nature fights economic rationale Size supplants shareholder value as the corporate goal Company doesn't sell a unit even though the company no longer adds value to it While the transformed units would be better off in another company that had related businesses, the restructuring company instead retains them Gradually becomes a portfolio manager The parent company's ROI declines as the need for reinvestment in the units and normal business risks eventually offset restructuring's one-shot gain Even synergy that is clearly defined often fails to materialize; instead of cooperating, business units often compete A company that can define the synergies it is pursuing still faces significant organizational impediments in achieving them The need to capture the benefits of relationships between businesses has never been more important Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete (value activities) Primary activities: create the product or service, deliver and market it, and provide after-sale support; inbound/outbound logistics, operations, marketing and sales, service Support activities: provide inputs and infrastructure that allow the primary activities to take place; company infrastructure, HR management, tech development, procurement The value chain defines the two types of interrelationships that may create synergy The first is a company's ability to transfer skills or expertise among similar value chains; the second is the ability to share activities While each business unit has a separate value chain, knowledge about how to perform activities is transferred among the units Newly entered industries can benefit from expertise of existing units & vice versa These opportunities arise when BUs have similar buyers or channels, similar value activities like gov't relations or procurement, similarities in the broad configuration of the value chain, or the same strategic concept Countless companies have fallen into the trap of diversifying too readily because of similarities; mere similarity is not enough Transferring skills leads to competitive advantage only if the similarities among businesses meet three conditions: - The activities involved in the businesses are similar enough that sharing expertise is meaningful; broad similarities (i.e. marketing intensiveness or a common core process technology like bending metal) aren't a sufficient basis for diversification - The transfer of skills involves activities important to competitive advantage; transferring skills in peripheral activities (i.e. government relations or real estate in consumer goods units) may be beneficial but is not a basis for diversification - The skills transferred represent a significant source of competitive advantage for the receiving unit; the expertise or skills to be transferred are both advanced and proprietary enough to be beyond the capabilities of competitors The prospect for change must be specific and identifiable Almost guaranteeing that no shareholder value will be created, too many companies are satisfied with vague prospects or faint hopes that skills will transfer The transfer of skills can be one-time or ongoing Transferring skills meets the tests of diversification if the company truly mobilizes proprietary expertise across units The industries the company chooses for diversification must pass the attractiveness test; even a close fit that reflects opportunities to transfer skills may not overcome poor industry structure If the company exhausts opportunities to infuse new expertise into a unit after the initial postacquisition period, the unit should ultimately be sold By using both acquisitions and internal development, companies can build a transfer-of-skills strategy The ability to share activities is a potent basis for corporate strategy because sharing often enhances competitive advantage by lowering cost or raising differentiation Not all sharing leads to competitive advantage, and companies can encounter deep organizational resistance to even beneficial sharing possibilities Sharing can lower costs if it achieves economies of scale, boosts the efficiency of utilization, or helps a company move more rapidly down the learning curve Sharing must involve activities significant to competitive advantage, not just any activity Sharing activities inevitably involves costs that the benefits must outweigh Many companies have only superficially identified their potential for sharing Opportunities to gain advantage from sharing activities have proliferated because of momentous developments in technology, deregulation, and competition The corporate strategy of sharing can involve both acquisition and internal development Following the shared-activities model requires an organizationalcontextinwhichbusinessunitcollaboration is encouraged and reinforced Company must put into place a variety of what I call horizontal mechanisms—a strong sense of corporate identity, a clear corporate mission statement that emphasizes the importance of integrating BU strategies, an incentive system that rewards more than just business unit results, cross-business-unit task forces, and other methods of integrating Companies can succeed with any of the concepts if they clearly define the corporation's role and objectives, have the skills necessary for meeting the concept's prerequisites, organize themselves to manage diversity in a way that fits the strategy, and find themselves in an appropriate capital market environment A corporate strategy based on shared activities clearly meets the better-off test because business units gain ongoing tangible advantages from others within the corporation It also meets the cost-of-entry test by reducing the expense of surmounting the barriers to internal entry Each concept of corporate strategy allows the diversified company to create shareholder value in a different way Companies can succeed with any of the concepts if they clearly define the corporation's role and objectives, have the skills necessary for meeting the concept's prerequisites, organize themselves to manage diversity in a way that fits the strategy, and find themselves in an appropriate capital market environment Corporate strategy should not be a onceand-for-all choice but a vision that can evolve A company should choose its long-term preferred concept and then proceed pragmatically toward it from its initial starting point A company can employ a restructuring strategy at the same time it transfers skills or shares activities Both strategic logic & experience of companies studied over the last decade suggest that a company will create shareholder value through diversification to a greater and greater extent as its strategy moves from portfolio management toward sharing activities Because they do not rely on superior insight or other questionable assumptions about the company's capabilities, sharing activities and transferring skills offer the best avenues for value creation Companies with the best acquisition records tend to make heavier-than-average use of start-ups and joint ventures To translate the principles of corp strategy into successful diversification, a company must first take an objective look at its existing businesses & the value added by the corp A company can choose a corporate strategy by: Identifying the interrelationships among already existing business units None of the concepts of corporate strategy works when industry structure is poor or implementation is bad, no matter how related the industries are Selecting the core businesses that will be the foundation of the corp strategy Creating horizontal organizational mechanisms to facilitate interrelationships among the core businesses and lay the groundwork for future related diversification A company can choose a corporate strategy by: 1. Identifying the interrelationships among already existing business units 2. Selecting the core businesses that will be the foundation of the corporate strategy 3. Creating horizontal organizational mechanisms to facilitate interrelationships among the core businesses and lay the groundwork for future related diversification 4. Pursuing diversification opportunities that allow shared activities 5. Pursuing diversification through the transfer of skills if opportunities for sharing activities are limited or exhausted 6. Pursuing a strategy of restructuring if this fits the skills of management or no good opportunities exist for forging corporate interrelationships 7. Paying dividends so that the shareholders can be the portfolio managers Defining a corporate theme is a good way to ensure that the corporation will create shareholder value Having the right theme helps unite the efforts of business units and reinforces the ways they interrelate as well as guides the choice of new businesses to enter Easy to create too shallow of a theme The failure of corporate strategy reflects the fact that most diversified companies have failed to think in terms of how they really add value A corporate strategy that truly enhances the competitive advantage of each business unit is the best defense against the corporate raider With a sharper focus on diversification tests & explicit choice of a clear concept of corp strategy, companies' diversification track records from now on can look a lot different

Inside the tornado

Focus on market share Sell to infrastructure buyer Commoditize your product SHIP, SHIP, SHIP Way to potentially cross chasm Wait until everyone jumps aboard When things go well, they really go well (so you're business is going to explode and you're going to keep shipping)

Why does disruptive innovation matter?

Helps you determine who to ignore and who to attack Need to pay attention to those attacking low-end of your market

Examples of core competencies

Honda's ability to engineer highly reliable, powerful, small engines - Core product: engine - BUs: lawnmowers, motorcycles, cars - End products: Honda Accord Disney's ability to harness creative people and make successful businesses out of imagination - Core product: characters - BUs: theme parks, TVs, movies, etc. Intel's semiconductor design Coca-Cola's strong brand value, franchise network, cost controls, distribution network and administrative control Southwest's strong culture, standard aircrafts, etc. SuperCell's ability to leverage small, functioning teams Narayana's experience from repetition

Jeff Immelt steps down as CEO of General Electric (in-class video)

Immelt succeeded legendary CEO Jack Welch in 2001, who was famous for vastly expanding GE's size and scope Oversaw the shedding of many of GE's divisions GE's stock has struggled in recent years The company and Immelt have been under pressure to cut costs and increase profits to boost the stock price Will be succeeded by GE Healthcare CEO John Flannery (ended up only lasting 14 months)

Clinical economies of scale

Improving care by reducing variation - Creating centers of excellence by specialty - Investing in clinical training - Standardizing clinical protocols and reducing clinical -variation - Reducing service line duplication - Improving access through TeleHealth Knowing how to do something well Diversifying your bets; different people donating money; $ from insurance

Strategy (vs. business model)

Strategy is designing and building the car, the business model is the car, and tactics are how you drive the car

How mobile money is spreading (reading notes)

It's measure of how fast and unpredictably technology and finance have developed that the two most influential new payment systems of the 21st century so far both came about more or less by accident M-PESA, Kenya's mobile-payment system, evolved out of a pilot scheme in 2005 by Safaricom, the country's biggest mobile operator, financed by DFID, the British government's aid agency Its researchers had noticed that Kenyans were transferring mobile-phone airtime between each other as if it were money They thought this might offer a way to handle microcredit repayments, reducing costs Alipay, a smartphone-based payment system now ubiquitous in China and spreading fast abroad, has its origins in a service devised for Taobao, an online platform run by Alibaba where small businesses sell direct to Chinese consumers Customers were reluctant to pay for goods before they had received them, so buyers would send their orders by fax to Alipay to hold their money in escrow and release it when delivery was confirmed In 2008 this system was transformed into mobile "wallets" in which the money is held On Singles' Day last year, a day of frenetic online commerce, Alipay processed $25bn in transactions, 90% of them via mobile phones Safaricom turned M-PESA into a general money-transfer system which became the most popular way of moving money around in Kenya Account-holders (who now number nearly 30m) pay money in by handing cash to one of Safaricom's 148,000-plus agents, typically corner shops that were already selling scratch cards to top up mobile phones The cash can then be withdrawn at another agent or transferred to another M-PESA account-holder That allows people working in the cities to send money back to their home villages faster, more cheaply and more securely. Other services have been added over the years. M-PESA has expanded abroad and spawned dozens of imitators. Almost all of them are tiny compared with Alipay, which has 520m active users, almost as many as all the mobile-money accounts held in the rest of the world put together It hopes to increase its customer base to 2bn worldwide by 2025 Ant, founded only in 2014, is expected to list on a stock exchange next year It is reported to be seeking an earlier round of funding which would value the company at $150bn (for comparison, Goldman Sachs is valued at about $100bn) The volumes its systems handle are staggering On Singles' Day (November 11th) last year, a day of frenetic online commerce, Alipay processed $25bn in transactions, 90% of them via mobile phones The only mobile-payment service that comes close to Alipay's scale is WeChat Pay, offered by its Chinese rival Tencent, a social-media giant It has reduced Alipay's share of the Chinese mobile-payment market from above 80% to just over half Most Chinese use both systems M-PESA and Alipay follow very different models M-PESA was designed for a simple feature phone, working from a text menu of options (though it is now also available as an app) Alipay is available only as a smartphone app, linked to a bank account, reflecting the rapid uptake of internet-enabled phones in China Payments are made by Quick Response (QR) codes, the square black-and-white dot matrices that have become ubiquitous in China Even some beggars accept them Both systems have made big inroads into financial exclusion A study in Kenya found that access to M-PESA increased consumption levels and lifted 194,000 Kenyan households (2% of the total) out of poverty In China the absolute number of adults without an account, at 225m, is still larger than anywhere else in the world But 82% of the unbanked have mobile phones, compared with about two-thirds globally Already 40% of adults in China make mobile payments, and 85% of those who make purchases on the internet pay for them online (globally, more than half of online buyers pay cash on delivery) 44% of China's people live in rural areas, where connectivity can be a barrier In the countryside 71% of residents still do not use the internet, compared with 33% in urban areas Both the "Chinese" and the "Kenyan" models have crossed borders Most developing countries have a mobile-payment service, but Sub-Saharan Africa is the only region where the share of adults with a mobile account exceeds 10% Tencent has an e-payment licence in Malaysia where it plans to launch WeChat Pay—its first foray outside China and Hong Kong Alipay has taken a higher-profile approach, enlisting merchants in Europe and America to accept it as a means of payment for the benefit of Chinese residents and tourists And in Asia itself, Ant Financial has been investing in local mobile-payment services in India, Indonesia, Malaysia, the Philippines, Singapore, South Korea and, most recently, Pakistan This last investment, of $184.5m, is to buy 45% of Telenor Microfinance Bank (TMB), which manages Pakistan's biggest mobile-money service, Easypaisa Owned by Telenor, a Norwegian multinational mobile-network operator, TMB launched Easypaisa in 2009 Competitors in Pakistan view Ant's arrival with some foreboding "They are here not to save the poor Pakistani but to promote e-commerce," says one local microfinance lender It is hardly surprising that many in this industry, rooted in charitable development work, feel ambivalent about vast commercial enterprises entering the payment business The suspicions are not confined to Pakistan, and are likely to become more acute as American and Chinese tech giants slug it out for market share in poor countries (see box) As a still largely nascent market of enormous potential, Pakistan also illustrates many of the other tensions affecting the payment business One is between the desire of both governments and businesses to digitise payments swiftly and the capacity of the population to go along with that Moving away from cash payments reduces costs, cuts leakages through corruption, discourages the informal economy and increases the tax base The poor may be equally quick to realize that mobile money is more secure from robbers, can save them hours of travelling and queuing and may open up a range of financial services But they may struggle to afford even a simple feature phone, and the illiterate and innumerate especially may find using it daunting at first In Pakistan that covers a big chunk of the population The overall adult-literacy rate of 58% hides lower shares in the countryside (49%) and among women (45%) The drive for financial inclusion may not narrow the gender gap Pakistan's Benazir Income Support Programme (BISP), which offers cash transfers to the neediest women, seemed a good way to do that, but making it work has not been straightforward Agents delivering the cash would take a cut. Almost all Pakistanis have a digital identity stored in a national database that helps them open a bank or mobile-money account. But giving BISP recipients debit cards linked to this so they could get the money from an ATM also sometimes meant that middlemen took the cards, withdrew the money and skimmed a commission. Mobile money works better, but it still usually involves a visit to an agent. The number of mobile accounts held by women in Pakistan rose by an impressive 4m in the 12 months to September last year, to 7.3m, but those held by men increased by an even more remarkable 12m, to 25.6m. Similar obstacles slow down the move from "cash-in-cash-out" (CICO) systems to those in which mobile money is accepted for day-to-day purchases. (Easypaisa is largely an "over-the-counter" system in which both sender and recipient use cash and the digital money moves from one agent to another.) The aim is to increase the number of individual mobile accounts, and then of mobile payments. But so long as other shops accept cash, an individual shopkeeper has little incentive to accept electronic payments. And a new study by McKinsey finds that CICO is still crucial to current business models for mobile money, accounting for about 60% of profits (see chart). Cash is here to stay. "It works quite well," notes McKinsey's Ms White drily. Even in Norway, where digital payments have a bigger share than anywhere else, 17% of all payments are still in cash. But digital payments will become easier and more common. "Tap-to-pay" methods using near-field communication technology that have taken off in Europe, and the EFTPOS (electronic funds transfer at point of sale) machines ubiquitous in rich countries, may be supplanted in many developing ones by an app on a small retailer's smartphone. In Pakistan, as in much of the world, this is likely to be one that can read a QR code. M-PESA in Kenya, for example, is rolling out "scan-to-pay" as well as "tap-to-pay" services among its merchants. Although cumbersome, electronic payments are possible on a feature phone, and some such phones have cameras that can read QR codes. But a smartphone makes them much easier, raising another tension: between feature-phone-based services and internet-enabled phones. In Pakistan the local subsidiary of FINCA, a global non-profit microfinance network, has a joint venture with FINJA, a local fintech, marketing a mobile wallet for smartphones called SimSim. That seems perverse in a country where smartphones account for only about a quarter of mobile connections. As elsewhere, however, that proportion is rising rapidly thanks to cheap Chinese handsets. Qasif Shahid of FINJA argues that in the modern world those without a smartphone lack a digital identity and are not really "included". Designing systems for them that rely on feature phones is "a ploy for people to continue to belong to the have-nots". A final tension is between competition and the concentration implied by network effects. Rich countries have burgeoning choices. Sit in a taxi in Singapore and the window is obscured by stickers advertising different ways to pay for the ride—credit cards, debit cards, stored-value cards and any number of smartphone apps. Shop counters groan under the weight of all the EFTPOS machines. But in frontier markets the brave pioneers of mobile money tend to become near-monopolies. M-PESA has 80% of the market in Kenya. In Bangladesh the central bank has licensed 27 services, and Kamal Quadir claims a market share of only 60% for bKash. But his network of 176,000 agents is hard to match. As he says, "you need network effects and scale to be effective." In Pakistan, Easypaisa and JazzCash, its biggest rival, have a market share of about 85% between them. One way of both fostering greater take-up of digital finance in the short term and mitigating the long-term risks of monopolies is to embrace "interoperability", allowing payments across different systems. To this end the Gates Foundation has collaborated with a number of fintechs, including Ripple, a highly valued distributed-ledger developer, to create free open-source software. The result, a system called Mojaloop (moja means "one" in Swahili), makes it easier to deploy interoperable payment platforms. The idea is to ensure that the very poor will have access whatever happens to the rest of the market. For now, intense competition in most countries means that disadvantaged consumers should indeed benefit from the rise in mobile money. But competition is fierce in part because network effects imply that the winner takes all. And as transferring money gets ever closer to the goal of free, frictionless, real-time payments, what will matter is not so much the process itself as the additional services the provider is offering

Digital payments takeaways

Start by thinking of the industry structure and value chain - Who are the players? What is their strategic position? - Who is providing value? Who is making the money? Look for shifts in consumer behavior (disruptive) Legacy industry structure (credit cards, processors) will influence the pace of technology adoption (cross chasm) Value chain will shrink (disintermediation) when middlemen stop providing value (Dell) Corporate strategy is knowing where to compete (AliPay - PayTM) Difficult for incumbents to shift their business (i.e. Chase Pay shifting to mobile wallets) because of their existing resources, and customer base (straddling)

Looking at P&G's US division grouping in 1956, who has the most influence (product, function, or geography)? What are the advantages/disadvantages?

Product Seen by being closer to CEO (more visibility, emphasis, time on calendar) Product VP controls function High on autonomy and control (potentially quality), but less economies of scale (toilet goods R&D might be doing same thing as foods R&D)

Laggards

Skeptics Begrudgingly adopt technology when they are given no choice Approximately ⅙ of the total market Believes that technology often fails to deliver on promises Rarely is a profitable segment Can be a negative influence to other buyers Often a missed opportunity for companies to find out "what does not work" Not willing to adopt to technology until necessary

Narayana Hrudayalaya Heart Hospital: Cardiac Care for the Poor (reading notes)

Situated in the south Indian city of Bangalore (India's Silicon Valley), almost everything about the heart hospital was unique (buildings, equipment, doctors, patient care) Founded in 2001 by Dr. Devi Prasad Shetty, NH had grown rapidly in 4 years to house 500 beds, 10 operating theatres, 2 cardiac laboratories, and its own blood and valve banks Since its opening, the hospital had completed over 11,228 open-heart surgeries (OHSes), half of which were pediatric The pediatric intensive therapy unit, which consisted of 50 beds, was one of the largest in the world with 40% of all procedures performed at NH being pediatric treatments In 2004, it performed 4,276 surgeries, of which 1,467 were on children, and 5,430 catheterization procedures To provide affordable cardiac care to the masses, NH followed a hybrid strategy of attracting paying patients by virtue of its reputation for high quality combined with a relentless focus on lowering its costs of operation wherever possible so that a larger number of people could afford to seek treatment The surplus gained from paying patients was used to subsidize procedures performed at, or below, cost for patients who could not afford the full fee In 2004, the proportion of patients who paid NH's full price to those that could not afford to pay was about 60:40 The break-even price for a typical OHS at NH was approximately 90,000 rupees (Rs.) (US$2,000) for adults and Rs. 130,000 (US$2,900) for children At Rs. 110,000 ($2,400) for a regular OHS package, NH's charges were the lowest in the country, where the average OHS cost in a private hospital was Rs. 250,000 ($5,500) At the upper end, patients who opted for executive wards paid Rs. 140,000-Rs. 195,000 (US$3,100- $4,300); this package provided private rooms instead of general wards, although treatment and care across all packages was identical Offered a scheme called Karuna Hrudaya, which allowed financially constrained patients to pay Rs. 65,000 (US$1,400) per OHS, with NH absorbing the remaining costs For patients who could not afford this package, the Narayana Hrudayalaya Trust, a charitable organization with offices within the hospital, helped to arrange funds from a general corpus or by specifically seeking donations from a list Besides the hospital, we will build a teaching institute for cardiologists, cardiac surgeons, and other health-care specialists "Health care is a peculiar beast where in spite of all the new technology, costs keep going up all the time; we are out to buck that trend" Observed Mother Theresa; cofounded the Asia Heart Foundation (AHF) NH surgeons very skilled and experienced; Dr. Shetty himself was the first cardiac surgeon in India to conduct neonatal open-heart surgery in the country With their vast experience, the surgeons at NH were able to achieve international standards in their procedures Karnataka was the eighth-largest state in India and was known for its IT and software industries, which were concentrated in its capital city, Banga; relatively developed state India was the world's second-most populous country after China In 2003, the Indian government had one of the lowest public health-care spending levels in the world; private spending was several times higher While there had been improvements in life expectancy, general indicators of health and nutrition remained poor With 15,000+ hospitals and 600,000 physicians , it appeared India's health-care system was well equipped; however, the actual # of physicians per 1,000 population was only 0.5 (compared with 2.7 in U.S.), and since approximately 70% of doctors were located in urban areas, actual access to health care was limited by inconvenient/expensive travel While public health care was mostly free, the high incidence of corruption at government hospitals lowered the cost differential b/w public and private health care Public hospitals and clinics were notoriously understaffed and underequipped Given that less than 14% of the population was supported by health insurance, treatment was an option only for the rich or those able to borrow to pay the bill Ironically, India's private health-care industry, while closed off to the country's majority, was gaining popularity among foreigners; medical tourism was spreading; low cost of treatment at Indian private hospitals (relative to developed countries) was an attraction Heart disease was one of the most common illnesses in India; Indian genes are three times more vulnerable to heart disease Coronary: most common heart disease when blood supply to the heart is blocked Besides good medical therapy, there were two common methods of treating coronary heart disease—angioplasty (form of catheterization) and CABG (OHS) The operations strategy at NH followed the dual principle of highest quality at the lowest cost consistent with that quality No compromises when it came to the quality of the hospital's facilities, equipment, and support services Vision was to provide health care at an affordable price to the masses -> operations tried to drive unit costs lower through a high level of capacity utilization/productivity The "Wal-Martization of health care;" strong reputation in cardiac care and many procedures Volumes -> negotiate better deals with our suppliers Instead of buying costly machines, pay the supplier monthly rent for parking machines Don't sign long-term contracts to help maintain low costs While the Calcutta hospital and NH had separate purchasing departments (the two hospitals were owned by different entities), there was enough communication between the two departments to increase their bargaining power By keeping the administrative team lean, NH also avoided the usual problem of corruption that plagued other corporate hospitals where suppliers had to bribe administrative staff to reach the purchasing manager, thus pushing prices higher While the Calcutta hospital and NH had separate purchasing departments, there was enough communication between the 2 departments to increase their bargaining power Enjoyed 30-35% discounts on medical supplies (largest cost component) NH embraced new technology as another way to reduce costs The hospital had also implemented comprehensive hospital management software for its operations, which helped maintain minimum inventory and allowed quicker processing of tests; such advances were said to have increased the hospital's efficiency, which in turn drove overall costs lower While India boasts world-class pharmaceutical companies that manufacture drugs for the developed world, the Indian population's access to medicine is limited by high prices "Our connections to other heart hospitals means at our suggestion they, too, will start to use these products The core cost savings were the staff salaries; work much longer hours and perform more procedures; NH's doctors received fixed salaries and not a % of revenues they generated From its first day of operation, NH had a sufficient mix of paying and nonpaying patients to sustain its charitable mission Have never had to turn away a patient for lack of funds The mission of providing below-cost care (where necessary) required careful planning and internal financial controls, and to this end, the finance department employed a unique daily accounting system whereby all revenue and costs for the day (including prorated salaries, cost of medical supplies, etc.) were accounted for Can plan how much good work is possible by monitoring funds on a daily basis By monitoring our funds on a daily basis, we are able to plan how much good work we can do on any given day A major component of Dr. Shetty's ambition to provide cardiac care to the rural poor was the use of telemedicine Sensing the need for immediate treatment and care in rural areas, Dr. Shetty set up nine coronarycare units (CCUs) across India equipped with beds, medication, computers, ECG machines, videoconferencing, & staff With the patient and the GP on the screen, the specialist diagnosed the condition and advised the GP on the appropriate treatment based on ECG Patients who needed to be kept under observation stayed overnight at the CCUs, and specialists at NH and RTI conducted daily virtual checks on their condition NH also created a software program that allowed ECG images to be scanned and transmitted via a Web connection Although telemedicine was not a new concept in India in 2001, NH and RTI made up the country's largest network and were the only hospitals in India that provided the service free (funded by AHF) Between 2001 and July 2004, the NH facility performed 9,591 teleconsultations and the CCUs had 4,077 inpatients, many of whom would not have received treatment otherwise "If the patient does not require surgery, then the doctors may not need to touch him; once thousand of CCUs are networked, telemedicine can be self-sustaining for a few rupees per patient" While the telemedicine project utilized government infrastructure, the initial concept originated and was implemented via efforts at NH Both NH and RTI also organized outreach camps for cardiac diagnosis and care Each weekend, 2 buses were sent out to rural areas with at least 3 doctors & equipment (even machines that could be used with irregular power supply for rural) On average, each camp screened 400 people a day, none of whom was required to pay either the hospital or the organizers; when a diagnosis indicated that the patient required medical intervention, he was advised to visit NH/RTI, where the procedure was performed at/below cost with help from the NH charitable trust In addition to clinical work, the NH doctors were actively involved in training the next generation of specialists; NH ran 19 postgraduate programs for doctors and other staff; offered the country's only formal training program for pediatric cardiac surgery In 2005, NH was scheduled to offer India's first diploma in cardiology; a higher supply of cardiologists was expected to drive the costs of care lower By equipping GPs with skills to handle emergency and nonintervention cardiology, the program would enable a higher proportion of the population to have access to cardiac care A higher supply of cardiologists was expected to drive the costs of care lower Beyond training doctors, a separate department coordinated the training of nurses The college of nursing, which was housed within NH, offered degree and diploma courses for trainee nurses; to encourage students from poor remote areas, who'd benefit most from these educational opportunities, NH arranged to guarantee bank loans to cover fees and living expenses; on return, the trainee nurses worked at the hospital during their course and for up to two years afterwards, thus supplying much-needed manpoweR The passion to serve the masses also drove Dr. Shetty to develop an insurance program called Yeshasvini Health insurance scheme for 1.7 million farmers and their families in Karnataka Utilized the existing government infrastructure, in the form of the state-controlled cooperative societies of Karnataka For Rs. 5 (US$0.11) a month, cardholders had access to free treatment at 150 hospitals in 29 districts of the state for any medical procedure costing up to Rs. 100,000 ($2,200) By collecting the insurance fees up front for a year, the Yeshasvini Trust (which was created to own the scheme) was able to minimize the initial need for funds Research by the NH team estimated that only 8% of the policyholders would require medical procedures, thus the total funds collected were expected to cover the cost of treatment for those in need The most common use of the scheme was for nonsurgical treatment and low-cost treatments people would otherwise have forsaken, since there was little money to spare to treat non-life threatening conditions As in telemedicine, the insurance scheme relied on using government infrastructure, but most of the planning and implementation was contributed by the NH team The success of Yeshasvini subsequently prompted Dr. Shetty and his team to consider new avenues for similar programs—for instance, plans were underway to administer an insurance scheme for teachers in Karnataka Shetty aspired to build on the insurance program to organize self-help groups in the state; one possibility was to have communities of 200 families living in a common area band together to increase their purchasing power Having built NH into a reputable and profitable hospital, Dr. Shetty was keen to extend the concept of affordable health care to other specialties, with NH serving as the "backbone" hospital NH started noncardiac units (i.e. neurosurgery, orthopedic and trauma) lowering costs The plan was to build a total of 10 hospitals in a common area, with each hospital housing 1-2 specialties and being self-sufficient within each specialty (each building would have its own OTs, intensive care units, etc.) but would draw on common facilities such as blood banks and labs already established at NH By employing specialists in each field who would be able to perform high volumes of surgeries and by leveraging the underutilized common facilities, Dr. Shetty expected to offer tertiary health care at below-average costs Three lines of business: heart hospital and all the associated activities, Yeshasvini insurance scheme, vision for the Health City with many specialties all within a geographical proximity (to utilize the common infrastructure, labs, supplies, transport, etc., to further bring down costs while improving quality for the masses of people who even lack basic care)

When innovating, companies can choose how much to focus on what 2 kinds of innovation?

Technology and business model ... Business model: how companies make money; how they apply their resources and get products/services to customers who are willing to pay

Idea

Theory, research, science Belief

According to the Rule of _________________, companies that are not generalists (#1-3) or niche, often end up in the ditch

Three

T/F It 's easy for incumbents to overshoot their market and add new features

True because it seems to be working and they believe they know how to do it

A balanced scorecard should contain leading and ___________ indicators

lagging

Commercialization of a new product or service allows for temporary ____________ profits

monopoly

Environmental, ___________, and government programs can support a company's long-term sustainability

social

Transformations require __________; significant leadership, change management and siupporting activities (i.e. investment in IT)

time

AT&T, Time Warner and the Entire Media Merger Frenzy Explained (in-class video)

Fear of the future is driving these deals Companies like Netflix, Google, and Facebook disrupting old way of doing things TV used to make money from monthly cable bills and ads; both lines of business under attack Netflix and Amazon selling programming directly to consumers; spending tons on content Facebook and Google taking ad dollars by using data for targeting Debatable if mergers will work AT&T sees chance to modernize TV advertising with Time Warner More questions than answers on how it will impact consumers More TV choices; mergers promise to cut costs but debatable Verizon might hunt for content-company Media would have no problem selling to tech companies even though tech originally disrupted media No real financial motives for these mergers; mainly fear Incumbents consolidating among themselves even though Facebook, YouTube, Amazon new competitors to be feared

WeWork Bonds Fall to New Low (in-class)

The debt has been volatile following news reports about a looming cash crunch and strategies for raising money WeWork's 7.875% unsecured bonds due in 2025 traded as low as 79 cents on the dollar, according to MarketAxess, translating to a yield of around 13.2%

Who was Andy Grove and what was his role in Intel's success?

Helped bring the computer age; first employee at Intel Coined the term "strategic inflection point" - Getting out of memories - Sole manufacturing and marketing directly to consumers (getting rid of licensing and doing it themselves) OKR (Objectives and Key Results) management philosophy Management: creative confrontation; sign-in sheet for latecomers Only the paranoid Survive; worked in a cubicle like everyone Meritocratic culture; pay for performance (reward the top) Missed a key strategic inflection point (#3) - Rise of the inexpensive (less than $1K) laptop, and non-PC devices (phones, set-top boxes, etc.): eventually launched Celeron; missed tablet era

Why did Dell choose to virtually integrate?

Less assets, less risk Less capital: suppliers build factories, not Dell Fewer numbers of employees Coordination and focus: building a tightly coordinate supply chain while ensuring efficiency through specialization Making all components can be less efficient than integrating independent specialists

Chip

Series of intersections that tells electrons (1s and 0s) where to go Like a city map or grid of roads The more intersections/transistors you can put in the same area, the faster and cheaper it's going to get Gate length (width of intersection) 30 atoms across

Successful companies have the ability to make the most important decisions well - and then execute them

Bain argues that an effective organization is vital to success, however, research finds only 15% of companies have an organization that helps them outperform What separates the winners is the ability to decide and deliver which can be achieved by aligning 5 vital attributes - leadership, accountability, people, frontline execution and performance culture 90% of high-performance organizations assert that significant decisions get made well resulting in prompt, effective action 50% of self-rated "less effective" organizations believe they often fail at making and executing decisions

Virtual integration

Basically stitch together a business with partners that are treated as if they're inside the company Provides benefits of tightly coordinated supply chain and flexibility Getting some of the benefits of vertical integration by sharing information and having good contracts without physically owning the company I.e. Dell has employees at Boeing and suppliers at manufacturing facilitiy

Exceptions to portfolio management being less compelling

Berkshire Hathaway (own many things and stock) Multi-diversified conglomerates in still developing markets Samsung in Korea in 1980s; Sony in Japan in 1960s; Tata/Reliance in India when still developing Matters who you know in emerging market and knowing how to navigate emerging market is a core competence (Being a conglomerate gives better chance of surving emerging market)

A Return to Growth in Turbulent Times (in-class videos)

Chris Zook 2/3 of Bain's strategy studies have their number one recommendation as something that tracks back to hidden potential in the core During the Internet bubble, profit from the core became a classic, but now even more important in today's confusing world Why focus matters today: - Focus is more difficult to achieve, yet more important to have - In a world where you have to focus and where resources are more scarce, focus becomes more important - During difficult times, follower's margins have a swing that is 3-5x as great as that of leaders - The world is filled with industries that are restructuring (media, automotive, energy, telecom) 2/3 of the global profit pool is now in industries that are restructuring -> finding profitable growth is challenging Odds of profitable growth decreasing every decade (now 1/10) and odds of CEOs remaining in job has declined 10 year journey to identify insights and repeatable lessons, ideas, models, and company formulas Businesses often underestimate the full potential of their core and management teams don't have consensus on what their greatest strengths are If you don't know who/what you are, it's hard to know what you can be and where you can go Cold truth about hot markets: excitement in press/media about hot markets 80% of sustained value creators were actually in lower-growth but had clearly focused strong cores (i.e. Toyota in automobiles, Nike in athletic shoes; markets aren't high-growth) Paradox of leadership: companies always focus on the weaker businesses to get them up to par with the stronger ones, but stronger ones have more potential and should be focused on Must take the time to reach consensus on what the core is, the core of the core, and the crown jewels of today and the future ... People chase things (might look good now) and are unimaginative (also explains why incumbents often don't see disruptive innovators) Need to determine what you're good at and amplify that rather than looking at what's hot for the time being

Population economies of scale

Developing an integrated system of care - Identifying populations, assessing health, and stratifying risk - Setting a portfolio of health management interventions - Preventative services - Transitional care - Complex care - Post-acute care - Physicians, surgeons, nurses - I.e. insurance Clinical pathway (how clinical stuff gets done); conveyor belt

________________ innovation attacks the low-end of the market, providing less for less

Disruptive

Why was Europe's structure different than that of the US in 1956?

Diversity: France and Germany are a lot different than Alabama and Georgia Most R&D coming out of Cincinnati still (doesn't make sense for each smaller area to have own R&D when could be better if centralized)

Why does organizational design matter?

Doesn't matter how good your strategy is unless you have people who are able to work together What it looks like varies on the size and what you're trying to do If you're trying to encourage innovation it's likely decentralized; likely centralized if trying to organize around costs It's not enough (just boxes and lines); there's no perfect singular one Different kinds of structure allow you to emphasize different things

T/F Inventions are innovation

False

History of Goldman Sachs

Founded in 1869, celebrating 150 years Sidney Weinberg: father of modern Goldman Sachs (1930-1969) who started as janitor assistant Essentially created institutional stockbroking in 1960s and made modern initial public offering in 1980s (helped discover modern approach to IPOs) GS believed in the "religion of client service, remaining steadfastly on the long-term" Focus on being "long-term greedy" In the 1990s, 2000s, GS was a trading powerhouse; 52% of revenue in 2009; 5-6 CEOs from trading Current CEO, David Solomon is from investment banking ... Clients come first and willing to take trade loss and not represent hostile companies to stay true Revenue and NI has been relatively flat in past decade

Tesla Unveiled a Bulletproof Pickup; Then the Window Broke

Frameworks: blue ocean, technology adoption life cycle, founder's mentality, value creation and capture

LVMH Bets It Can Restore Tiffany's Shine with $16B deal

Frameworks: core competencies, industry analysis, corporate strategy and unlocking value, ratio analysis

Car Makers Wager on Bigger Screens

Frameworks: game theory, value creation and capture

4 types of organizational structure

Functional (R&D, sales, manufacturing) Product-based (printers, PCs, servers, solutions) Geographic (Asia, Europe, US) Customer segment-based (individual, small-business, enterprise) These exist concurrently (together), but need to know which is alpha/beta

How Goldman Sachs Is Using Technology to Redefine Banking (podcast)

GS has been a bastion of Wall Street for 150 years, but forced to redefine itself in the era of digital technology and AI Marty Chavez: vice chairman, co-head of securities, and former CFO of Goldman Trading and coding are the same thing because the skills have completely merged into human beings who are both; it's an evolution; "traders who code" Formerly ineffective communication: Traders would say to the technologists, "Would you build a risk-management system?" And then the technologists would build something, and then they'd deliver it to the traders, and the traders would be unhappy and they'd say, "Well, that's not what I meant" Would be talking past each other Traders and coders used to speak different languages Realized they can find people with a math and software and engineering skillset and put them on the trading desk so they can live and breathe the trading business Created a bilingual or ambidextrous workforce There was a very strict separation between traders and strategists; traders were not allowed to commit code to the production environment, and strategists were not allowed to commit capital One group would commit code, the other would commit capital As time went on, there was the advent of electronic or algorithmic trading -> engineers (strategists) writing software which would put trades into the market No longer useful or accurate to say that there was this division—these people commit code, and these people commit capital, and never the twain shall meet You have a large number of training instances, and, one way or the other, by hook or by crook, usually with human beings, you've dichotomized all those training instances If there's a rich data set, then that's going to be a very rich opportunity for machine learning and work-flow automation Increasingly finding that computers can take datasets (i.e. company financial info) and apply machine learning to them to make adjustments; do merger math; do that at scale, out in the Amazon cloud; suggest to bankers this is something worth discussing with your client; generate the first version of the pitch book you could use to motivate it -> M&A could be partially automated Finding limitations in current techniques, because GS needs to explain its reasoning and have strong and accurate explanations of what's going on; current techniques don't give you definitive, accurate explanations The data/tools GS reached insights with was the secret sauce or formula of Coke Mission of GS trading business: serve clients, assess value, build scale Clients come to GS because they have risks they don't want & want risks they don't have; GS' job to help them understand and analyze it and then transform it from what they have to what they want GS thinks about the relationship and what makes it more interesting and inspiring for clients to keep coming back to them; people come back to what they know and love Instead of having something internal and proprietary (where a client call a salesperson who has to do everything for you over the phone), GS took a large # of activities and then made them available to its clients in a self-serve format on a website You want to be a little bit ahead, because that's going to be an interesting and attractive differentiator; you want to be on the cutting edge but not the bleeding edge Almost 30% of the GS workforce now has a STEM background Those with a math & software skillset (engineers; data scientists, quants, and algorithmic trading engineers) have evolved from providing support, to being helpful, to being valuable, and to now being one of the pillars of the business and leaders One of the things Chavez and his colleagues have done is the first few times they get asked a question by one of their colleagues (i.e. trader, salesperson, banker) you do a bunch of analysis, and then you socialize (show) it; package it up and just give it to your colleague as a tool, and politely ask your colleague not to bother you with that request anymore Strategy of automating oneself, or helping others automate a particular activity, in every case, allows you to go on and do more interesting, more valuable things GS is learning through experimentation; ie dropped Chavez (derivative quant) in investment banking without knowing a thing about it Ample research that having diverse teams is collinear with better performance; diversity could be from an intellectual perspective (i.e. having data scientist with veteran investment and banker) Doesn't think that many people will need to know how to code; the algorithmic modular structured approach to problem solving is something everybody needs to learn—the data-driven techniques to solving complex problems, something that everyone can learn and everyone really needs to learn Take someone with this skillset, put her over there, mix and match, see what happens, run a lot of experiments has worked well for GS Chavez very public direct about the need for institutions, starting with GS, to find ways to engage a broader population of perspective workers to remove anything that dissuades people from being interested in working for the firm & working in the industry Finding balance between using AI and human capital for getting talent

1990s hierarchy

Global matrix Brand manager -> category -> global category hierarchy

AdSense

Google placing an ad on a third party website Other websites have parking spots that you can park ads; Google finds customers who want to park ads somewhere Uses a Vickery Auction Helps you earn money by putting ads on your site; choose where you want the ads to go Can choose the types of ads and even change the color

Google Founder's Letter (2004)

Google isn't a conventional company and doesn't intend to become one Has emphasized an atmosphere of creativity/challenge, which has helped them provide unbiased, accurate & free access to info for those who rely on Google around the world Change to public ownership will bring benefits for Google's employees, present and future shareholders, customers, and users Standard structure of public ownership may jeopardize the independence and focused objectivity that have been most important in Google's past success and what they consider most fundamental for its future Therefore, Google has implemented a corporate structure designed to protect Google's ability to innovate and retain its most distinctive characteristics Confident that this will benefit Google and its shareholders in the long run Google intends to write a letter like this one every year in their annual report Founders (Sergey/Larry) believed they could provide an important service to the world, instantly delivering relevant information on virtually any topic Serving end users is at the heart of what Google does and remains their #1 priority Goal: develop services that significantly improve the lives of as many people as possible In pursuing this goal, Google may do things they believe have a positive impact on the world, even if the near term financial returns are not obvious I.e. services made widely available supporting 90+ languages and by providing most services for free Advertising is Google's principal source of revenue, & ads are relevant and useful rather than intrusive and annoying; Google strives to provide users with great commercial info Proud of their products & hopes future ones will have even more positive impact As a private company, Google has concentrated on the long term, and will do the same as a public company, we will do the same Outside pressures often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations, which has caused companies to manipulate financial results in order to make their quarter; Google won't do this If opportunities arise that might cause Google to sacrifice short term results but are best in the long term interest of shareholders, it will take those opportunities Google expects projects to have some realized benefit or progress within a year or two, but tries to look forward as far as it can Despite the quickly changing business and technology landscape, it tries to look at 3-5 year scenarios in order to decide what to do now Try to optimize total benefit over multi-year scenarios Many companies are pressured to keep their earnings in line with analysts' forecasts, so they often accept smaller, predictable earnings rather than larger and less predictable return; Google intends to steer in the opposite direction Google has had adequate cash to fund itself and has generated more through operations -> flexibility to weather costs, benefit from opportunities & optimize long term earnings Google releases improvements immediately rather than delaying them, even though delay might give "smoother" financial results Committed to quick execution to achieve long term value rather than making quarters more predictable Long term focus does have risks, since markets may have trouble evaluating long term value, thus potentially reducing the value of Google "Our long term focus may simply be the wrong business strategy; competitors may be rewarded for short term tactics and grow stronger as a result; as potential investors, you should consider the risks around our long term focus" Google will make business decisions with its long term welfare and shareholders in mind and not based on accounting considerations Doesn't plan to give earnings guidance in the traditional sense; unable to predict its business within a narrow range for each quarter Our business environment changes rapidly and needs long term investment. We will not hesitate to place major bets on promising new opportunities. Won't shy away from high-risk, high-reward projects bc of short term earnings pressure For example, Google would fund projects that have a 10% chance of earning a billion dollars over the long term Might place smaller bets in areas that seem very speculative or even strange when compared to Google's current businesses Google can't quantify the specific level of risk it will undertake; as the reward-to-risk ratio increases, will accept projects further outside its current businesses, especially if the initial investment is small relative to the level of investment in current businesses Encourage employees to spend 20% of their time working on what they think will most benefit Google; this empowers them to be more creative and innovative Many significant advances have happened this way (i.e. AdSense, Google News) As Google seeks to maximize value in the long term, it may have quarter-to-quarter volatility as it realizes losses on some new projects and gains on others Will devote the vast majority of resources to improvements to its main businesses (currently search and advertising), despite excitement for risky projects Google is run as a triumvirate: Sergey Brin, Larry Page, and Eric Schmidt Unconventional structure that works To facilitate timely decisions, the 3 meet daily to update each other on the business & to collaboratively think about the most important/immediate issues Decisions are often made by one of them, with the others being briefed later Tremendous trust and respect for each other and generally think alike Disagreements signal uncertain answer For important decisions, they discuss the issue with a larger team Differences are resolved through discussion, analysis and by reaching consensus Company run without any significant internal conflict, but with healthy debate Shared judgments & extra energy available from the trio has benefited Google Eric has the CEO's legal responsibilities; manages VPs and the sales organization Sergey focuses on engineering and business deals Larry focuses on engineering and product management Distinguished board of directors to oversee the management of Google Talented executive staff that manages day-to-day operations (finance, sales, engineering, human resources, public relations, legal and product management) Creating a corporate structure that is designed for stability over long time horizons By investing in Google, you're placing an unusual long term bet on the team, especially Sergey and Larry, and on their innovative approach Want Google to become an important and significant institution, which takes time, stability and independence; Google bridges the media and technology industries, both of which have experienced considerable consolidation and attempted hostile takeovers In the transition to public ownership, Google set up a corporate structure that will make it harder for outside parties to take over or influence the company Structure will make it easier for the management team to follow a long term, innovative approach Dual class voting structure: Class A common stock has 1 vote per share, while Class B common stock held by many current shareholders has 10 votes per share Leaves team, especially Sergey and Larry , with increasingly significant control over the company's decisions and fate, as Google shares change hands After the IPO, the trio will control 37.6% of the voting power of Google, and the executive management team and directors as a group will control 61.4% New investors will fully share in Google's long term economic future but will have little ability to influence its strategic decisions through their voting rights Unusual structure for tech company; more similar to media business (i.e. NY Times, Post) Dual class ownership has allowed media companies to concentrate on their core, long term interest in serious news coverage, despite fluctuations in quarterly results Some studies have concluded dual class structures negatively affect share prices, and Google cannot assure you that this will not be the case with them Believes a dual class voting structure will enable Google, as a public company, to retain many of the positive aspects of being private Convinced that everyone associated with Google, including new investors, will benefit from this structure; however, Google/shareholders may not realize the intended benefits Recently expanded board of directors to include 3 additional members Google believes the stability afforded by dual class will let the company retain its unique culture & continue to attract/retain talented people who are Google's life blood Colleagues will be able to trust that they themselves and their labors of hard work, love and creativity will be well cared for by a company focused on stability and the long term When founded, believed that searching/organizing world's info was an important task that should be carried out by a company that's trustworthy & interested in public good Google has a responsibility to the world, and dual class helps ensure it's met; believe that fulfilling this responsibility will deliver increased value to our shareholders Wants fair IPO process that's inclusive of both small and large investors -> auction-based Goal: share price reflecting an efficient market valuation of Google that moves rationally based on changes in its business and the stock market Believe auction-based (though unusual in the US) IPO will minimize problems such as unreasonable speculation, small initial share float, and stock price volatility Goal is to have the price of shares at the IPO and in the aftermarket reflect an efficient market price; in other words, a price set by rational and informed buyers and sellers Seeks to achieve a relatively stable price in the days following the IPO and that buyers and sellers receive an efficient market price at the IPO Working to create a sufficient supply of shares to meet investor demand at IPO time and after; encouraging current shareholders to consider selling some shares as part of the offering, which will supplement the shares the company sells to provide more supply for investors and hopefully provide a more stable price The more shares current holders sell, the more likely it is they believe the price isn't unfairly low (Sergey/Larry actually planning to sell some of theirs) The supply of shares available will likely have an effect on the auction's clearing price Since the # of shares being sold is likely larger at a high price and smaller at a lower, investors will want to consider the scope of current shareholder participation in the IPO IPO designed to be inclusive for both small and large investors, but not all interested investors will be able to receive an allocation of shares in Google's IPO Google wants you to invest for the long term; shouldn't expect to sell shares for a profit shortly after the IPO Investing in Google through the auction could be followed by a significant decline in the value of your investment after the IPO Googlers (employees); Google is organized around the ability to attract and leverage the talent of exceptional technologists and business people; talented people are attracted to Google because they get empowered to change the world Provide many unusual benefits to employees (i.e. doctors, washing machines, free meals); expect to add more over time to improve their health and productivity The significant employee ownership of Google has made them what we they today Because of their employee talent, Google is doing exciting work in nearly every area of computer science. We are in a very competitive industry where the quality of our product is paramount Main benefit is a workplace with important projects, where employees can contribute and grow Focused on providing an environment where talented, hard working people are rewarded for their contributions to Google and for making the world a better place Google believes that it will better serve shareholders the long term if it does good things for the world, even if that means forgoing some short term gains (don't be evil) Search results are unbiased and objective; uninfluenced by payment Display advertising, which they work hard to make relevant, and they label it clearly; ads are clear and the articles are not influenced by the advertisers' payments Believes it's important for everyone to have access to the best information and research, not only to the information people pay for you to see Aspire to make Google an institution that makes the world a better place Google connects people and information all around the world for free Gmail protects a user's privacy and is free; AdWords connects users and advertisers efficiently, helping both; AdSense helps fund many online websites and enables authors who couldn't otherwise publish; Google Grants for nonprofits; Google Foundation Will optimize for the long term rather than trying to produce smooth earnings for each quarter; support selected high-risk, high-reward projects and manage portfolio of projects; run the company collaboratively as a team of three; conscious of our duty as fiduciaries for our shareholders, and will fulfill those responsibilities; will continue to strive to attract creative, committed new employees; will welcome support from new shareholders; will live up to "don't be evil" principle by keeping user trust and not accepting payment for search results; dual class structure that's biased toward stability & independence and that requires investors to bet on the team, especially Sergey/Larry Desire stability and access for all investors; goal to have investors who invest for the long term; desire to create an ideal working environment that will ultimately drive the success of Google by retaining and attracting talented Googlers

Steve Easterbrook

Moved HQ from Oak Brook, where it resided in custom-built campus for some 4 decades, to Chicago's West Town neighborhood to be closer to the millennials they want as employees and as customers Launched Turnaround Plan to reset and rebuild the business with 3 priorities: driving operational growth, returning the brand excitement, and unlocking financial value - Started refranchising its operations in an effort to drive more local accountability, ownership, and connection with the customer - Streamlined management structure, flattening the organization - Improved local marketing Implemented all-day breakfast by installing separate grills and being cook-to-order during non-peak Attempted to improve public perceptions with a media campaign highlighting positive news about the company's food and workers; launched a video series entitled "Our Food, Your Questions," demonstrating how McDonald's food items are made Credited for aggressively investing for future with digital, EOTF, and delivery; net margins up but most of those gains are from increased pricing and cost-reduction (not increased growth)

P&G Corporate Structure (reading notes)

Organizational structure is comprised of GBUs, Selling & Market Operations, Global Business Services & Corporate Functions; combines global scale benefits with a local focus on consumers & retail customers in each country where P&G products are sold Portfolio is organized around 10 category-based Global Business Units (GBUs), and category business leaders have full decision-making authority for their businesses These are categories where P&G has leading market positions and where product technologies deliver performance differences that matter to consumers GBUs are responsible for developing overall brand strategy, new product upgrades and innovations, and marketing plans 10 categories: Baby Care, Fabric Care, Family Care, Feminine Care, Grooming, Hair Care, Home Care, Oral Care, Personal Health Care, and Skin and Personal Care Selling and Market Operations (SMOs) are responsible for developing and executing go-to-market plans at the local level - and includes dedicated retail customer, trade channel and country-specific teams Focus on effective & efficient selling, distribution, shelving, pricing execution & merchandising for consumers, channels, customers & markets in six regions: Asia Pacific, Europe, Greater China, India, the Middle East and Africa (IMEA), Latin America, and North America Global Business Services (GBS) operates and supports the infrastructure, operations, systems, and shared services that run P&G; also discovers, develops, and implements technologies to accelerate and advance the work of P&G brands Corporate Functions provide company-level strategy and portfolio analysis, corporate accounting, treasury, tax, governance, human resources, IT, and legal

How is P&G currently organized (2019)?

Organizational structure is comprised of Global Business Units (GBUs - product groups), Selling and Market Operations (Europe, Latin America, North America), Global Business Services (infrastructure, operations, systems, and shared services; things done at scale) and Corporate Functions (finance, HR, IT, sourcing) Combines global scale benefits with a local focus on consumers and retail customers in each country where P&G countries are sold

P&G in 2017

Organized into 5 major categories or BUs: - Fabric & Home - Baby, Feminine, & Family - Beauty - Health - Grooming Dealing with slow growth with headcount reductions Trying to simplify number of products / market combination Same 3 part organizational structure Actually bragging about how is reduced its headcount by 25%

What were the organizational changes between 1945 - 1980s?

P&G announces plans to form individual operating divisions to better manage its growing lines of products; this divisionalization also creates separate line and staff organizations

Jim Skinner

Previous vice chairman of McDonald's Shifted focus - fewer new openings, greater focus on revamping existing restaurants, improving operational efficiency (cutting costs) ... "Plan to Win" Shift from acquiring expensive real estate to generating increased sales from existing restaurants In the early 2000s, McD's was opening a new store somewhere in the world every 4.5 hours; under Skinner's watch, the pace slowed to just 50 to 100 new U.S. sites per year To compensate, existing stores started to stay open longer, extending their hours into late night & early morning; by 2007, roughly 40% of McD's' locations were open nonstop Skinner used the money saved on fewer new openings to revamp existing restaurants (gentler colors, free WiFi) Headquarters provided grants up to $600,000 per site; some projects cost up to $1.5 million -> $1 billion believing "nicer-looking stores attract more business"

How does AdSense serve as a matchmaker between advertisers and web destinations?

Select the type of ad you want on your site (size, placement, industry type) Get paid as people click through Auctions with no ad reps, no negotiations, no relationships - This system "ensures" that advertisers are only charged when user clicked on an ad

Facebook (evolution)

Started as a social network (peer-to-peer) Became a platform (with developers) Has elements of a market place (users/advertisers) Entry was a clustered approach (get Harvard) before rolling out to other clusters (i.e. Stanford) Focused on engagement, not just growth Realized the retention was critical (emailing your 10+ friends to join, tweaking products/timelines/relationship status

Narayana Hrudayala's ingredients for success

Strong demand for low-priced services Low (enough) cost structure to serve the market - High utilization with spreads fixed costs over many cases - Economies of scale to exert leverage on suppliers - Valuable resources (highly skilled, productive surgeons, etc.) Set of differentiated activities making it difficult for competition to imitate (i.e. brand, telemedicine, insurance plan)

T/F Google tries to maintain and claims objectivity in its search results

True At the core of Google's value system is that user experience matters most, and if the user experience is simple and fast, and uncluttered with ads, and if Google makes no attempt to steer users to its own sites, a bond of trust will form Larry Page: "We will maintain a church / state wall" between the information a Google search provides and advertising ... Still true; economic moat

T/F Transferring skills and sharing resources can help to hone strategic competitive advantage

True(ish) Enormous debate on this topic for the last 40+ years Some evidence to show that diversification in related industries (not unrelated) yields high performance Potentially builds on the concepts of RBV, economies of scale, and core competencies

T/F Increasingly all companies are entering the payments industry

True... convergence of: Device (Samsung, Apple) Tech firms (Alibaba, Google) Retailers (Starbucks, Walmart) Telecom (Orange, Vodaphone) Startups (Square, Venmo) Bank disruptive innovation (Zelle)

Will C2C penetrate the B2C market?

Venmo limits commercial use (withdrawal limit) Venmo purchases run through PayPal with a limited number of vendors

Describe the semiconductor manufacturing industry

Very large and dominated by US, Korea, Taiwan (geopolitical with Europe being out) $300 billion industry, growing at 6% CAGR Big three (Intel, Samsung, TSMC) make up almost 50% of sales Highly profitable, but cyclical business Gross margins ~60%; EBITDA margin ~30% R&D expense ~20% of revenues; 5 of top 10 high margin Profitable business

Network

A group of interconnected people (social network) or system of things (telephones, printers, computers) Grow in different ways

2005-Present hierarchy

3 equally important independent units: GBUs (categories like Beauty), SMO (markets like France), GBS (back office and economies of scale like Finance) No major hierarchy

The Purpose of Strategy is to Win: An interview with A.G. Lafley (notes)

A.G. Lafley took over as chief executive of P&G in 2000 and later became chairman; spent 33 years at the company As the company produced a dizzying array of well-known brands and products (i.e. Pampers, Always, Panten, coffee, snacks, oils), Lafley questioned what businesses P&G should be in Lafley approached his job as chief executive as a product innovator and strategist Regularly discussed P&G's challenges and prospects with Roger L. Martin, a former consultant who is a dean at the University of Toronto; recently wrote a book together (Playing to Win: How Strategy Really Works) When he took over as chief executive, P&G's market capitalization was in the $50 billion to $60 billion range; when he retired in 2010, it was $160 billion Lafley sharpened P&G's focus to concentrate on household and personal care products; he acquired Gillette, which accounted for nearly half of P&G's growth in market value Can understand strategy by bringing 2 perspectives (practitioner & theorist) together Strategy is about winning; and not about just playing the game Winning means 3 things: uniquely positioning a firm in its industry, creating sustainable advantage, and delivering superior value versus the competition Leaders don't like to make choices; they like to have options because they don't want to take on the risk of making a bad choice or a wrong choice But the fact is, strategy is all about making choices — choosing where you're going to play and how you're going to win, along with what winning means Many CEOs choose to play but not necessarily to win, which is why so many companies turn in lackluster results, because they just want to stay in the game and keep their jobs In the '80s, the average CEO served for 8-10 years, but now it's 3-4 because the stakeholders aren't happy with the results she or he is delivering (arguably because they don't know what winning means, and they won't make the hard choices) Saying "strategy is to be opportunistic" is a rationalization... not a strategy Planning & strategy aren't the same; neither are goals & strategies, nor vision & strategy If you spend a few thoughtful hours with the right team of managers/advisers, you can frame 80% of the critical choices you need to make to create a good strategy in virtually any industry; if you had two or three hours, you'd want to understand the industry, consumers, customer, firm's capabilities/costs, competition, and what winning means Winning is all about uniquely, or at least distinctively, positioning your business or brand, product or service, to deliver a better experience and better value to a certain group of customers to attain competitive advantage versus certain competitors At P&G, winning is about "those who matter most" — a specific segment of consumers — and "against the very best competitors" When you win with consumers and against competition, you deliver superior value to your stakeholders I.e. SK-II: a small, high-end skin care brand needed less than 1% of women to buy it to win, but P&G needed the right 1% (highly skin-involved women) to build a leading, high-end niche business with high loyalty & profitability P&G's strategy leads to the very specific consumer/market segments it serves, the highly differentiated positioning of its brands and products, the ways it selects technologies & design to formulate products, & the way it chooses to go to market in certain channels Olay, a low-end skin care product selling for $5 in drug stores, came to P&G in a 1980 acquisition that was able to grow by expanding it geographically over 15 years In 2000, P&G needed to understand and assess the entire beauty care industry and learned skin care product lines really drove value -> decided to see if new customers could be created for Olay -> developing customer insights With insights, P&G recognized it should lower the target point-of-entry age for anti-aging skin care products from the 50's to the 30's and broaden the range of treatment benefits in Olay's anti-aging products from only wrinkles to all of the important signs of aging or the "seven signs of aging" These 2 strategic decisions increased the size of the fast-growing anti-aging skin care segment, further accelerated growth of this segment, and gave Olay an opening to (re)enter the segment serving younger women with broader-benefit products Redesigned and reformulated the products, created boutiques or product lines that offered different product segments at different price points, found a tech partner that had unique technology/ingredient that worked well in its product Working with discount store and drugstore retail partners, P&G created a new segment called Masstige — positioned between low-priced mass skin care brands, where Olay had been, and high-price prestige brands Re-priced Olay Total Effects right below Clinique's opening price point, in the mid-priced $15 to $25 range and designed a "prestige-like" package Went to retailers (i.e. Target, CVS) to ask if they would help create a better skin care shopping experience in their stores; a boutique-like merchandising approach that would bring Masstige to life and encourage switching Masstige was a new segment into brands and products that looked "prestigious" but were mid-priced and mass-marketed Strategy was reframing anti-aging, lowering the point of entry and creating the Masstige segment to disrupt prestige and reinvigorate mass marketing Learned women were buying certain products in department stores, others in discount (store) and drugstores, and increasingly replenishing products online -> P&G's mass retailers saw this as an opportunity to shift business into their stores New ingredients were important & must work; promised continual improvement Fundamental approach with Olay and its consumers was a partnership: P&G will provide the brand & products if you use them in your daily skin care regimen (promised continual improvement over a lifetime) Olay's strategy was to focus on consumers, not profits, and ended up with was a leading brand position in skin care A potentially winning strategy shortens your odds, but doesn't guarantee success because business is risky, customers are demanding, and competitors are formidable To improve chances of success, P&G looked at industry attractiveness and whether there was a segment it could serve, value it could create for the consumer and for the channel and customer, and was value for themselves; then, P&G looked at its capabilities Looked at revenue growth, gross/operating margin growth, and various measurements of cash flow productivity (return on capital employed, ROI, etc.), depending on the business capital structure; also looked at the competitive environment and where P&G wanted to be 10 or 20 or 30 years down the road Used the same strategic framework for disposals/acquisitions, and then looked at other drivers of the decision depending on the businesses and P&G's capabilities, and market I.e. Pringles was a global snacks brand, but Laflery wanted the company to move out of food and beverages, so it wasn't an attractive industry for them To understand if an industry is attractive, you have to ask, are there customers and consumers you can serve in a unique way to create value for yourself? You have to ask, how do you stack up against the competition? Do you have the right capabilities and costs for the industry? And, you have to ask about the competition? You have to ask yourself those questions regarding every business you're in All boils down to the classic Peter Drucker question: What businesses should I be in? And what business should I not be in? When Laflery joined P&G in the mid-'70s, it was a food and beverage, paper, and cleaning products company; when he left in 2010, it was a household care and personal care products company... all the food and beverage businesses were gone. Strategy and capabilities were the most important determinants of what businesses stayed in the P&G portfolio You have to face facts and say, "You know, we're really not competitive here," which means you're faced with the hard part of making a choice I.e. P&G got out of the pharmaceutical drug business because it didn't think it could compete with global leaders, keep up the huge research investment that's required, or compete on regulatory (work with the FDA) or effectively lobby The decision to use pharmaceutical drug products is made by the doctor, not the consumer, yet P&G's strategic business model focuses on household and personal care products that are bought weekly and used daily Strategically, Gillette was a great "where-to-play" choice P&G wanted to be in male grooming and personal care, including skin and hair care, and in female grooming; also interested in their Oral B toothbrush business to strengthen Crest's position in oral car Most important reason P&G went for Gillette was that it was a great fit with P&G's strategic capabilities; with P&G's consumer knowledge and their category-leading positions, there would be opportunities Ability to innovate with them would be a big plus, and the global reach and scale of P&G's businesses was a good match P&G was stronger in China, Gillette stronger in Korea; together, could see way to billion-dollar businesses in Brazil and India; the two combined were much stronger partners with suppliers and retailers Gillette added $10 billion to P&G's sales and $50 billion to their market cap Opened up new categories and markets for P&G: added about $100 billion of market cap in the first decade of the new millennium, with about half of it acquired, mostly with Gillette; other half of our market cap growth was organic In early 2000, 55 percent of P&G's revenue came from its core strategic businesses; by 2010, 80 percent came from core strategic businesses In 2000, P&G had 10 brands that did $1 billion or more in annual sales; in 2010, P&G had 25 billion-dollar brands Growth resulted from focusing on P&G's three most important strategic decisions — grow P&G's core, extend into beauty and personal care, and expand into emerging markets A few strategic choices can be extremely powerful The essence of strategy is making choices to distinctively position your company to win

What does it mean that core competencies are what your company does better than everyone else? (3 characteristics)

Access to a wide variety of markets Benefits the product as perceived by the customer Difficult for the competitors to match

What is AdWords? (video)

AdWords: Google's online advertising platform that can help you drive interested people to your website Allows you to take advantage of the millions of searches conducted on Google each day You create ads for your business and choose when you want them to appear on Google, above or next to relevant search results You enter words that are relevant to your products or services, and then AdWords shows your ad on Google when someone searches for that or related words Google combs through billions of web pages, blogs, and other listings to find the ones most relevant to the words you search; generates search results AdWords gives your business visibility, even if your website is not in the top results Can help get your business to appear on Google in front of many potential customers They search, find your business, click, and potentially become your customers Help your business grow; reach customers across the web; go mobile; manage your budget If you're looking to attract customers in your local area, AdWords lets you pick when and where you want your ads to show You can target your ads so whenever people in your state, region, city, or neighborhood search for businesses like yours, your ads show up next to their search results With AdWords, you can display your ad on thousands of sites across the web Your ads will show up when potential customers are visiting sites related to the products and services you offer If you sell fitness apparel, your ads may display on sites that discuss fitness, workouts, healthy living, and related topics; anyone browsing the web for workout gear and learning about the latest fitness trend may be interested in buying from your site Every day, millions of people access the Internet from their mobile devices: research products and services, search for local businesses, and click on your ad from their mobile phones to call you directly for more information Your potential clients are on the move, and with AdWords, your business can be wherever your customers are AdWords can help you attract new customers and grow your business online, in addition to helping you create ads that target the people most likely to buy your products and services at the time they're most ready AdWords can help you manage and control your advertising spend You select the maximum amount that you're willing to spend; only pay when someone clicks on your ad and visits your site AdWords can be a key part to marketing and growing your business online; allows potential customers to find you on Google and many other websites; you only pay when potential customers click on your ad and actually visit your website; lets potential clients know you're open for business online; smart way to attract customers on the go; handy way to attract customers from near or far; takes your online marketing to the next level

Vickery Auction

After Google set a minimum bid price per keyword, the advertiser bids, say, $15 for a keyword If the next bid is $10, the winner only pays one cent more than the second highest bidder, saving nearly $5; the second-place bidder pays a penny more than the price bid by the third, and so on The advantages for advertisers were manifest They knew they were not being gouged, because they only paid a penny more than the next highest bidder They benefited by being charged only when the user clicked on the ad This gave them an incentive to produce a better ad because better ads produced more clicks, which lowered their cost per click And by charging per click, Google opened online advertising to may small businesses who normally had nowhere else to turn but the Yellow Pages ... Protects/reduces your risk of overbidding

Challenges of decision-driven organization

Assumes everyone knows what the main decisions are Subjective (i.e. how to evaluate speed, effort)

Airbnb

Built the demand side first; supply always follows Trust and safety are important with all marketplaces

Late majority

Conservatives Constitute about ⅓ of the total market When they find something that works for them, don't like to change Slightly "fear" technology Similar to early adopters; they stubbornly resist the pragmatist herd They like preassembled packages at a heavily discounted price Great opportunity to take "old technology" and repackage into a lower-cost easy-to-use solution Will wait until tech is well-established

GE's 2016 struggles

Creates $32 billion oil-services with Baker Hughes deal Continues acquisition spree with wind-power buy Buys two 3D printing companies at $1.4 billion Acquired 2 AI startups Buys billion-dollar startup ServiceMax for $915 million ... Bought oil, power generating things as prices were increasing -> crash Bought high instead of low Sold out of their GE money division at the bottom; bought oil/gas at the top

How has the US economy affected McDonald's?

Currently strong More customers are working & have more money to eat out, but customers with more disposable income are likely to "trade up" to higher quality/priced food options For the first time, American spending on dining exceeded grocery sales in 2015 (due to Millenials who view dining out as a social event and are more willing to pay for food outside of the home) Older consumers spending more on groceries and less on restaurant dining Competition over customer visits heating up in the fast food industry; customer count stays pretty constant but customers may not be visiting McD's as often as they were historically

How established companies lose the benefits of scale

Curse of the matrix Fragmentation of customer experience Complexity doom loop Death of the nobler mission ... Slow conflict resolution -> slow decision making that and possible destruction of company energy No one is accountable for your customer; no one person in charge of value proposition Growth creates complexity and complexity is the silent killer of growth Originally at war in industry now you're an incumbent defending it

Which of Goldman's internal venture capital groups manages a $1 billion portfolio of investments?

PSI (Principal Strategic Investments) Can place a lot of small bets, help them discover what they know and don't know, looking at new patents/technology/people

Arguments for/against opening platform

Data is a valued resource; being a platform lets you be in the middle and know what everyone's doing Helps brand even further Extends customer service (lets people do it themselves instead of having to call people) ... Low switching costs (SIMON opens up to competitors) Could be giving away value without capturing it First mover isn't always best thing Now targeting everyone instead of specific segments ... By making applications available to clients, Goldman hoped to claim valuable space on clients desktops and enhance customer dialogue that would position the firm as a preferred partner for trade execution and other transaction (want to create loyalty among institutional clients; felt analytics was a commodity) However, many saw this as a risky strategy: "Some outsiders and Goldman alumni question whether the firm will win enough client business to justify sharing more of its analytics with clients," reported a Wall Street Journal articl

4 criteria measuring effective decisions

Decision quality, speed (don't wait too long), yield (asking enough questions and making enough decisions), and effort (don't want to take multiple weeks and require many people)

McDonald's "Create Your own Taste" tablets

Design your own sandwich from 30+ choices of meats, toppings, & buns Can only be ordered from inside the restaurant, cost $1.50 more than a Big Mac, and take 7-8 minutes to prepare because the meat is cooked fresh Conundrum for a QSR that generates ~⅔ of its revenue from drive-through customers Franchises were unexcited about the additional cost and complexity; unsurprisingly, this offering was soon discontinued

Ouriel Lancry: Building a Digital Transformation Strategy (video)

Digital is a very vexing product for a lot of executives because it now means so many things to so many different people that it sort of became meaningless Companies trying to go digital or start digital transformation with no consensus on what that means Digital is about technology, the way people interact with it, and trust (i.e. Airbnb wouldn't exist if people didn't trust sleeping on stranger's couch) Digital is equal measures innovation and disruption and requires executives think about offense and defense Four pillars of digital transformation: - Digital strategy: helping clients get started, even though they're not sure what the end game looks like and if there is one Business model: product, customer experience, economic model, operations - What is the raw need and how can the company rediscover it? - I.e. Is Domino's the pizza or speed? CEO redefine need as ordering pizza while waiting at stop light -> has made itself technological Enablers: technology, data, people, culture, operating model - Getting to a clear vision so you can determine the best way to inject technology and digital into all the layers of the organization Orchestration: the right way to move from an experiment to a transformation - A lot of companies have had successful experiments (best people working on it, unlimited funding, don't announce to market, freedom to succeed or fail, can use any technology/software that they wish) - When you try to scale to marketplace, it becomes more difficult 1/10 of transformations succeed; digital has an even lower success rate Today forward, future back - Future back: imagining the future 5-20 years out & working back to today to start making progress towards it despite the fact you're unsure where it lands; i.e. automotive 10 years ago would have been "autonomous and electric" If you start early and deploy the right approach, you can make a ton of quick progress

T/F 80% of hospitals are for-profit

False... 80% are actually not-for-profit

T/F Core competencies are for companies with one or multiple business units or product lines

False... company must have multiple business units or product lines Can't really apply to Sandlands, since they only have one

T/F Lafley claims being opportunisitic is a strategy

False... he says being opportunisitic is a rationalization, not a strategy In the 80s, the average CEO served for 8-10 years; in the last couple of years, the average CEO's tenure is 3-4 years -> more short-term decisions

T/F Organization structure is the only aspect of organizational effectiveness

False... is just one (and the most obvious) Also requires clear roles and responsibilities, span of control, recruitment, talent management, leadership, incentives, successful panning, knowledge management and culture

Attractiveness test for diversification

Falsely believe the target industry is "similar" - I.e. Xerox thinking HP simply prints stuff like them Low cost of entry = "why not" Falsely believe fast growth = profitability (i.e. WeWork)

What's going on with Goldman Sach's strategy?

Famous company that's done a lot of things really well for a long time, but with revenues/profits down they're looking to become more business-to-consumer (B2C) by using technology Largely a B2B company hoping to become more B2C; challenging road ahead

Types of economies of scale in healthcare industry

Financial, operational, talent, clinical, population Extend beyond financial and operational benefits

WSJ Goldman Sachs is trying banking for the masses; it's been a struggle

First move into consumer banking; offering savings accounts with higher interest rates (currently 1.9% on cash), with no fees Gathered $50 billion in deposits, new low-cost way of funding Goldman's consumer bank has lost $1.3 billion since launching in 2016 Spent heavily on startups, cloud storage, new talent, and customer acquisition costs Started offering non-collateralized loans online Wrote off $156M in 2018, another $155M in 1H 2019 Hesitate on collections because of "predatory image" Goldman doesn't currently have a B2C image; looking for ways to get the word out; acquired Clarity app (1 million users) Collaborating with Apple Card (Apple seems to have more sway) Bit of an identity crisis: Who are you targeting? (Millennials, high net-worth 45 year olds?) There's no Marcus app

Velocity Growth Plan in 2017

Focused on the Experience of the Future (EOTF), digital, and delivery - Digital: reshaping our interactions with the customer - whether they eat in, take out, drive thru or order delivery - Delivery: bringing the McD's experience to more customers - in their homes, their dorm rooms, their workplaces, and beyond - Experience of the Future in the US: elevating the customer experience in the restaurants through tech and the restaurant teams who bring it to life; an aggressive technology upgrade to allow Starbucks-like interactivity to both smooth out operational waiting times and improve the customer experience Easterbrook

Why Software Is Eating the World

Great infrastructure exists for rapid software startups: - 6 decades into the computer revolution, 4 decades since the invention of the microprocessor, and 2 decades into the rise of the modern Internet, broadband, storage - Software programming tools and Internet-based services make it easy to launch new global and software-powered start-ups Every industry needs to assume a software revolution is coming For heavy real-world component such as oil and gas, the software revolution is primarily an opportunity for incumbents (access to data, relation with customers, capital invested) Software is also eating much of the value chain of industries that are widely viewed as primarily existing in the physical world (i.e. cars)

Marty Chavez

In 2013, Marty Chavez became the firm's first CIO, then in 2017 he became Goldman's CFO; has since left Willingness to use technology to simplify internal operations: - With downward pressure on revenue and earnings, Goldman executives recognized the need to reduce expenses through operational efficiency, strengthen their core businesses, and position the firm to capitalize on new business opportunities - US cash equity trading desk went from 600 equities traders in 2000 to 2 traders and hundreds of computer engines in 2017 - FICC used to operate in silos, where each of those businesses was run as a unit; so instead of having seven separate and distinct teams, we have seven smaller teams focused on what is unique to each business and one bigger team underneath

Nelson Peltz

In 2017, Nelson Peltz (Trian Partners) hedge fund and activist investor (profit-motivated using equity) gets involves; acquires large position in P&G Lobbies for board seat and changes P&G spends $100M defending itself against the campaign Offered 8 recommendations in a 90+ page document: - Organize P&G in a way that promotes accountability - Ensure $12-13B "productivity plan" delivers results - Fix the innovation machine - Develop small, mid-size & local brands - Make M&A a growth strategy and a core competency - Win in digital - Address insular culture - Improve corporate governance After a heated public relations battle, Nelson Peltz was granted a board seat Believes the matrix organization limits growth

China's Digital-Payments Giant Keeps Bank Chiefs Up at Night (reading notes)

In Western countries it's common to talk about American technology being dominant; from an Asian perspective that seems off Fresh from visiting Asia, where buskers and kerbside fishmongers can be paid by presenting a phone, Schumpeter has found it a shock being back in New York Buying most things involves signing bits of paper & PIN numbers are viewed as transgressive; only 2% of US credit/debit-card transactions are authenticated with PIN numbers; 19bn cheques are written in the country every year Asian firms have leapfrogged ahead, offering a new model of financial technology Ant Financial: payments company affiliated with Alibaba, one of China's 2 giant internet firms (other is Tencent, whose WeChat messaging is ubiquitous & supports payments) Popular in China and has ambitions outside it Already the world's most valuable "fintech" firm, worth $60bn, it has 520m payments customers at home and its affiliates abroad have 112m, mainly in Asia Signed a deal to install its payments system in millions of American retail outlets; trying to buy MoneyGram (Texas-based money-transfer firm in 200+ countries) Spun out of Alibaba in 2014 Core business is enabling payments by a vast army of customers to the 10m or so merchants who use Alibaba's e-commerce sites; accounts for over ¼ of revenues and gives Ant huge scale at home China's internet-payments mkt is the world's biggest, with $11trn in transactions last year, 2x the size of America's credit/debit-card industry Ant controls 51% of it; the firm is 16x larger than PayPal, a US counterpart Ant has developed a menu of services: its home screen lets you buy train tickets, pay utility bills and invest in mutual funds Yu'e Bao, a money-market fund run by Ant, has $166bn of assets Ant lends to its clients, but so far its balance sheet is modest: outstanding loans to small firms were $5bn in 2016 Fees are low, but Ant's profits still reached $820m last year, up by 14% since 2014 For protectionists, the firm is evidence of a Chinese plot to control the world's financial plumbing; for consumers, it could boost competition in a cosy industry China's lead is about size, as people make payments mainly by using phones Whereas Western products (ie Apple Pay) typically piggyback off credit-card firms' networks to access clients' funds, China's firms often access bank accounts directly, cutting out the middlemen Jack Ma, the tycoon who controls Alibaba and Ant, has a grand vision to turn a Chinese empire into a global one, and for Ant there are 2 opportunities: One is a business known as "merchants acceptance," machines for paying for goods in shops and hotels At the moment Chinese travellers abroad, whose ranks reached 120m in 2016, often use UnionPay (card provider); Ant is moving in, letting people use Alipay when they have weekends in Dubai or make family Disney trips Longer term, the goal is to create a huge online network of local consumers & merchants in other countries, replicating Ant's model in China, but building relationships with local banks and firms takes time; also, in poorer countries few people have bank accounts to connect to mobile; instead they hand over cash in shops/kiosks to fill up mobile wallets Ant is expanding through local subsidiaries or affiliates Along with Alibaba it owns about ½ of Paytm (Indian digital-payments star); has bought stakes in fintech firms in Thailand, Singapore, Indonesia, the Philippines & South Korea Buying MoneyGram wouldn't bring cutting-edge tech (core activity is cash remittance), but would give Ant licences abroad & clients who could be prodded to use digital services Ant's scale, innovation and drive mean it is well placed, but it faces three hurdles First, rising competition is dampening margins At home WeChat has helped boost Tencent's mkt share in digital payments from 15% in 2014 to 33% last year; abroad, Ant is not the first mover In South-East Asia several e-commerce and ride-hailing firms are bolting payments onto their apps to attract and keep more customers DBS, a regional lender, is a leader in digital banking; in America, Apple Pay is accepted in 4.5m locations and could get more popular As Ant grows it must manage a second problem, its tangled links with Alibaba The original spin-off was controversial, and Mr Ma controls a majority of the firm's voting interests today State-backed funds and entities collectively own about 15%. Alibaba doesn't own shares in Ant but is entitled to 37.5% of its profits Agreement can change if Ant does an IPO -> Alibaba gets 33% of shares The two firms share joint ventures and executives; pay fees to - and receive them from - each other; risk of conflict and muddle Ant's final hurdle is that foreign governments may not like Chinese firms having a big role in their financial systems America's national-security review panel (CFIUS) is looking at MoneyGram deal; on economic grounds they should welcome Ant so it can disrupt the bloated credit-card industry Visa and MasterCard extract over 0.10 cents of NI for every dollar of payments; Ant takes a smaller cut, of less than 0.03 cents China's financial system is isolated from the rest of the world Ant has evolved in a distinct—and more efficient—way The task now is to persuade other countries that its approach is safe, transparent & free from govt interference; better hurry up since Silicon Valley's giants will catch up soon

India's digital platforms (reading notes)

India is becoming an important battlefield for financial inclusion Drumbeaters are excited about India With 190m adults without bank or mobile-money accounts, of whom an estimated 100m have mobile phones, it is second only to China in its potential It has also become, in the words of Greta Bull, the chief executive of the Consultative Group to Assist the Poor, where "Silicon Valley battles China" Successive Indian governments have actively promoted both the opening of bank accounts and the expansion of digital money To nurture Aadhaar, the national-identity digital database, the previous Indian government in 2009 recruited Nandan Nilekani, a former boss of Infosys, a big Indian software and outsourcing firm Now back at Infosys, he says that the current Indian government is even more enthusiastic about the project Both administrations recognised, he says, that it is "the only way to achieve financial inclusion at scale" In some ways, he adds, "we have leapfrogged the rich world" Indians now have about 800m bank accounts linked to Aadhaar Account-holders do not even need a phone to get at their money Some merchants have thumbprint readers. Aadhaar forms part of what is called, in techie jargon, the "India Stack", a set of interlinked digital platforms that allow smooth transfers to and from bank accounts via a "Universal Payments Interface" (UPI) Bank accounts can be linked to a UPI address, allowing immediate payment to be made from one account to another Launched in 2016, it has had a decent start By this March it was handling around 178m transactions, worth about $3.6bn, reaching a larger number in 18 months than credit cards have managed in India in 18 years Dilip Asbe, chief executive of the National Payments Corporation of India, the bank-owned non-profit organisation responsible for the UPI, says that it will be small merchants who ultimately determine success As the system beds in, he believes that more and more of them will start accepting QR-code-based payments Global giants are now competing to develop applications for this interface Google launched an app called Tez (Hindi for "fast") last September By this March it already had 14m active users a month and was accepted as a form of payment by over 500,000 merchants Designed to resemble a Stack'em high India is becoming an important battlefield for financial inclusion messaging system, it also offers "proximity payments"—two nearby phones can be paired through an ultrasound signal ("audioQR") and money sent between them without the phone number or any other personal details being shared (a relief, in particular, to many women) WhatsApp, a messaging service owned by Facebook, has also been experimenting with a UPI-based payments system. But the biggest rival is a domestic online retailer and mobile-payment firm, Paytm (for "pay through mobile"), which in February handled 40% of India's UPI payments Claiming over 300m accounts, it provides the country's most popular mobile wallet Alibaba and Ant Financial are minority shareholders Around 150 Ant engineers have worked in India on Paytm's systems at one time or another Tencent, meanwhile, has invested in PhonePe, a mobile-payments competitor offered by Flipkart, another Indian online retailer Mobile payments got a big boost in November 2016 when India's prime minister, Narendra Modi, abruptly announced the withdrawal of high-value banknotes, which made up 86% of the rupees in circulation The number of Paytm accounts increased from 115m at the time of the announcement to 160m in just 60 days. In retrospect, this can be seen as one of the stages in a payment revolution in India The final destination seems an unlikely one for such a poor country, but according to Mr Asbe, "the ultimate aim is to replace cash"

How is healthcare different than other markets?

Inelastic, local demand Buyer, user, payer all differ Asymmetry in information (you don't have the information or diagnosis until doctor tells you)

Digital payments from a B2C perspective

Integrative platforms built into e-commerce sites to accept payment to secure and expedite the sales process In-store card processing machines for digital payments

Core Competence (reading notes)

Introduced into management literature in 1990 by C.K. Prahalad and Gary Hamel Core competencies: - The collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies - Is communication, involvement and a deep commitment to working across organizational boundaries - Does not diminish with use; unlike physical assets, which do deteriorate over time, competencies are enhanced as they are applied and shared Three tests: - A core competence provides potential access to a wide variety of markets - A core competence makes a significant contribution to the perceived customer benefits of the end product - Is difficult for competitors to imitate because it is a complex harmonization of individual technologies and production skills Corporation is a tree whose roots are its particular competencies; out of these roots grow the organization's "core products" which, in turn, nourish a number of separate business units; out of these business units come "end products" If a company could "maintain world manufacturing dominance in core products," it would "reserve the power to shape the evolution of end products" Many of the examples on which they based their theories were large, successful Japanese companies; before the end of the century, however, the performance of many of these companies had become distinctly less exemplary The core competence idea was useful to managers not only for focusing them on the essentials, but also for identifying those things that were not "at the core" Why, management might ask, were these non-essential things being allowed to consume valuable resources? Prahalad and Hamel succeeded in persuading managers to look at strategy as something fluid and imprecise; it was a switch from the more modular approach of Michael Porter and of the tradition of scientific management Porter had turned strategic thinking back in the direction of Frederick Taylor; Prahalad and Hamel changed that direction by several degrees The drive to identify core competencies moved in line with the growing popularity of outsourcing When companies were suddenly able to outsource almost any process that came under their corporate umbrella, they needed to know what lay in the hard core of activities that they were uniquely well qualified to carry out (activities that made no sense to hand over to a third party); in some cases there were very few The idea spread from core competencies to core everything—core processes, core businesses—everything that constituted the essence of what a company was and did Management consultants encouraged companies to focus on their core as a source of untapped potential in a time of rapid change and unpredictability

What does Marty Chavez mean by saying "Trading and coding are the same thing"

It's an evolution "future is already here, it's just uneven" - There's some regions and some product groups like equities where trading is coding; but other areas not yet (different groups move at different speeds) Varies by trading product, by trading region For US equities, it has already happened In the past, traders and technologists were talking past each other Creates a bilingual, ambidextrous workforce Historically, there was a strict delineation (boundary) between the traders (who commit capital) and strategist (who commit code) ... Potential conflict of interest for evaluating your own group

Is P&G a global company or multi-national company?

It's global Global: centralized; focused on cost-cutting and economies of scale ... Multi-national would mean European P&G comes up with different things than US

Don Thompson

Launched McCafe campaign ... When Don Thompson became CEO in 2012, most low-hanging fruit had been plucked Struggled with weakening sales under Thompson's reign despite efforts to optimize the menu, improve the customer experience, & make McDonald's more accessible; retired in 2015

Core Competence (video notes)

Meaning especially important for strategists and companies with multiple business units or product lines Diversified corporation is large tree Core products are trunk and major limbs Business units are smaller branches End products are leaves If you only compare end products, you'll miss the real strength of your company Core competence is root system that provides nourishment and stability What your organization knows about coordinating production and technology To figure out your real strength, identify the 5-6 things at most that your company does better than anyone else Core competencies must provide access to a wide variety of markets (i.e. Honda's engines for cars, lawn motors, generators), contribute to the benefits of the product as perceived by the customer, be hard for competitors to imitate (Honda competitors can't achieve their engine design and development skills even with bigger R&D budgets) Competencies not only bind existing businesses together, they also nourish new lines of business (i.e. Honda capitalized on experience making motorcycles with cars) Understanding your competencies can prevent you from making disastrous outsourcing mistakes (i.e. Chrysler tried outsourcing engines) Knowledge fades if it's not used In a world of intense global competition, understanding core competence helps you figure out how to create sustainable advantage that's more than just the sum of your current products

A platform that can be programmed, customized, and extended by outside users often does what?

Meets needs and creates niches not defined by it original developers at the outset

Digital payments from a C2C perspective

Mobile driven apps to send sums of money between peers Venmo, GooglePay, Chase Quickpay

The World's Cheapest Hospital Has to Get Even Cheaper (in-class reading)

Modicare; upskilling or task-shifting is working at the top of your licesnse (everyone should be doing the most valuable thing they can do) ... In the West, the condition would almost never be allowed to progress this far; but the patient, an outwardly healthy 31-year-old, lives in a remote city in western India, where doctors had no idea how sick he was At such a late stage, the only way to save his life was this difficult and dangerous operation at Narayana Health City in Bangalore Shetty had almost no margin for error; ,iss one, and the whole ordeal would be for nothing; move too aggressively, and a slip could puncture a lung The surgery Shetty performed can tie up an operating room for most of a day In the U.S., the procedure can cost more than $200,000; Shetty did it for about $10,000 and turned a profit A cardiac surgeon by training, Shetty is the founder and chairman of Narayana Health, a chain of 23 hospitals across India that may be the cheapest full-service health-care provider in the world To American eyes, Narayana's prices look as if they must be missing at least one zero, even as outcomes for patients meet or exceed international benchmarks Surgery for head and neck cancers starts at $700; endoscopy is $14; a lung transplant, $7,000 Even a heart transplant will set a patient back only about $11,000 Narayana is dirt cheap even by Indian standards, with the investment bank Jefferies estimating that it can profitably offer some major surgeries for as little as half what domestic rivals charge (sustainable competitive advantage) Narayana has made Shetty one of India's best-known doctors and the proprietor of a lucrative business, with about $8 million in profit in 2017 But he now faces a problem that might be even more complex than heart surgery: how to make his hospitals cheaper still The reason is Modicare, the national health insurance program that's one of Prime Minister Narendra Modi's signature initiatives Under way since September, it's perhaps the most ambitious public-health effort in history, intended to give basic coverage for the first time to 500 million of India's poorest Last year the government published its list of reimbursement rates, which are lower even than Narayana's prices Those rock-bottom payments mean that to thrive under Modicare, Narayana needs to find ways to cut costs further—and then keep cutting Shetty thinks he can do it and, in the process, create a model for ultralow-cost health care that can be applied anywhere In 10 years, India will become the first country in the world to dissociate health from affluence; India will prove that the wealth of the nation has nothing to do with the quality of health care its citizens can enjoy In his mid-20s, Shetty entered a local medical school, where he saw the toll that poverty can take on health in India Many of the patients who came to his teaching hospital, he noticed, weren't recovering from surgery properly—sometimes resulting in a fistula, a painful abscess of the abdominal or anal region When Shetty investigated, he learned that the cause of their complications was simple: The patients couldn't afford the protein their bodies needed to mend So he began handing out hard-boiled eggs; soon he was known as the Egg Doctor Shetty went on to train at Guy's Hospital in London, where the cardiac team at Guy's could perform as many as six surgeries in a day—an unheard-of pace in India Shetty wondered if it could be replicated at home Although Shetty often performed free surgeries for the poorest of the poor, he reasoned that the only way to sustainably serve large numbers of people in need was to make it a business "What Mother Teresa did was not scalable" In the mid-1990s, Shetty began experimenting with a business school concept alternately called upskilling or task-shifting (working at the top of your licesnse; everyone should be doing the most aluable thing they can do) The idea is for everyone involved in a complex process to work only at the top of his qualification, leaving simpler tasks to lower-paid workers In a hospital, this might mean that the costliest staff—experienced surgeons—enter the operating theater only to complete the most difficult part of a procedure, leaving everything else to junior doctors or well-trained nurses Then they move to the next theater to perform the same task again. Within a decade the company had a national network and, in 2014, even opened in the Cayman Islands, in part to attract medical tourists from the U.S. Two years later, Narayana Health went public in Mumbai; it's been continuously profitable since. By working at this pace, the average Narayana surgeon performs as many as six times more procedures annually than an American counterpart (set of activities, human capital, culture) Shetty's philosophy of thrift is everywhere The surgical gowns are procured from a local company for about a third of the cost of international suppliers The tubes that carry blood to heart-and-lung machines are sterilized and reused after each surgery; in the West, they're thrown away The machines themselves, along with devices such as CT and MRI scanners, are used well past their warranties, kept running by a team of in-house mechanics (vertically integrated operating) The operating rooms, pieces of real estate so expensive that many hospitals bill for their use by the minute, are also part of the assembly line Whereas preparing a U.S. surgical theater for the next patient can take 30 minutes or more, Narayana has gotten the process down to less than 15, in part by keeping turnaround teams with fresh instruments, drapes, and other supplies on immediate standby, ready to roll the moment a room is available Even patients' families are part of the upskilling model Narayana trains them to bathe patients and change bandages in the hospital, as they'll do when they get home This allows paid staff to focus on more challenging work Through all these methods and more, Narayana has been able to get the retail cost of a heart bypass, its most common operation, down to $2,000, about 98 percent less than the U.S. average Involving properly instructed family members in the simplest care tasks isn't unheard of in Europe and North America, and some studies suggest it may improve patients' prospects (blue ocean: higher value, lower costs) Its huge volumes help surgeons quickly develop proficiency, the chain's mortality rates are comparable to or lower than those in the developed world, at least for some procedures (learning curve) Yet even for bypasses—Narayana's bread-and-butter procedure, with greater economies of scale than any other—Shetty needs to cut costs further, because Modicare will reimburse only about $1,300 for each surgery For other treatments, the difference between current price tags and Modicare payment schedules is much wider "They are paying less than what it costs," Shetty says "Unless you have someone paying more than what it costs, you may be able to survive for five years, but what about when the machines get old and need to be replaced?" Even at Narayana, thrift goes only so far Per capita, central-government spending on health care in India is lower than in any other major economy The Prime Minister's People's Healthcare Plan, as Modicare's official name translates from Hindi, provides about 500,000 rupees ($7,000) in annual hospital coverage to 107 million families, their eligibility determined by the primary breadwinner's occupation That works out to roughly a half-billion individuals now getting insurance for the first time Critics have urged Modi to put the money into India's shaky system of free public hospitals, but he argues that the country is better off relying on what's already in many respects a world-class private health-care industry and that the government can't afford to build enough facilities itself "I would like in my lifetime for every citizen of this planet to get health care at a price they can afford to pay without having to beg or sell something" In contrast to the ultra-itemized billing familiar to Americans, Modicare pays flat fees for every procedure, including the entire hospital stay required to get it done (Narayana operates the same way) The longer a patient occupies a bed, the greater the hit to the hospital; so it's in the interest of Narayana, and anyone who wants to make money off Modicare, to get ancillary costs as low as possible without jeopardizing outcomes There, about 70 programmers and product specialists set up their laptops every day wherever they can find a spot, WeWork-style They're building Atma, a platform intended to handle the back end of everything that happens at Narayana hospitals: admissions, payments, scheduling, pharmacy dispensations Every time a piece of equipment is used—something as trivial as a syringe or as complex as an MRI machine—the system will record it, along with data on outcomes and complications Narayana will then begin endlessly combing through the numbers, looking for unnecessary costs and devising ways to stamp them out (set of activities) The executive leading Atma, which means "soul" in Sanskrit, is Shetty's son Viren The other main component of Narayana's plan to overhaul itself for Modicare is more conventional: getting some people to pay more (segmentation, sustaining innovation of adding hardwood floors, soft flutes, rainfall showers) Platinum Wing patients pay an extra 8,500 rupees a day in addition to the cost of a basic single room Even in India's poorest cities, he estimates that 10-20% of the population might be willing to pay for such comforts Modicare is still in its infancy—as of March just 1.5 million people had used it—and Narayana is only partway through preparing for full implementation If Narayana succeeds, it may become a model not only for competitors in India but also for Western health-care operators, which are trying desperately to contain costs Nowhere is this more true than the world's most expensive health-care market, the U.S. " There's going to be a lot of interest in how India is pulling this off," says Ashish Jha, the director of Harvard's Global Health Institute "You're going to see health-care organizations in America and elsewhere really rethinking their business model and how they do things" That's a notion the elder Shetty enthusiastically endorses: "I would like in my lifetime for every citizen of this planet to get health care at a price they can afford to pay without having to beg or sell something"

Corporate strategy (company-wide) strategy

Multiple industries / markets concurrently What businesses to be in How corporate should manage Where to compete: - Vertical integration (value chain) - Diversification (products, services) - Geography (i.e. Starbucks going to Italy) ... When M&A makes sense; what's key to capturing synergies I.e. Narayana creating own IT system; GE's aviator, transportation, multi-modal, renewable energies, healthcare, oil and gas, nuclear

What were the organizational changes from 1980s - 1999?

P&G expanded its globalization plans; established a worldwide research and development network

Early majority

Pragmatists Are the bulk of volume for any technology product Constitute about ⅓ of the total market They look for continuous improvement (measurable, predictable) - Evolution, not revolution (like the innovators or early adopters) - Look for references from within their own industry Risk averse and prudent: - Pioneers are people with arrows in their backs - Don't want to be on bleeding edge Focused on the quality of their vendors, want post-sales support - Prefer buying from the market leader Requires significant patience to market and win their business - Hard to win over, but very loyal once committed Practical, risk averse, require references

Divisional Groups (Europe 1956)

President , Overseas Operations - Corporate Functions (Brussels), R&D, Process Design, Engineering, Finance - Country Managers -- Country-specific functions managed locally: sales, distribution, marketing, product development, finance, IT, HR

Why is portfolio management less compelling nowadays?

Proposition because of cheap money, free markets The idea that corporations acquire sound business and let them run autonomously seems less relevant than in the past - Unprecedented 20+ years of inexpensive capital (competitive markets) - Free-flow of information and managerial talent - Large pool venture capital, and private equity investors (lots of cheap money) ... Investors and shareholders don't need new demand for portfolio; quit trying to do anything In the face of increasingly well-developed capital markets, attractive companies with good managements show up on everyone's computer screen and attract top dollar in terms of acquisition premium Simply contributing capital isn't contributing much A sound strategy can easily be funded; small to medium-size companies don't need a munificent parent Large companies no longer corner the market for professional management skills; in fact, more and more observers believe managers cannot necessarily run anything in the absence of industry-specific knowledge and experience Another supposed advantage of the portfolio management concept, dispassionate review, rests on similarly shaky ground since the added value of review alone is questionable in a portfolio of sound companies The benefit of giving business units complete autonomy is also questionable

Transferring skill

Proprietary skills, which can be transferred Beachhead for new market and opportunities ... (Background) While each business unit has a separate value chain, knowledge about how to perform activities is transferred among the units A toiletries business unit, expert in the marketing of convenience products, transmits ideas on new positioning concepts, promotional techniques, and packaging possibilities to a newly acquired unit that sells cough syrup Newly entered industries can benefit from the expertise of existing units and vice versa These opportunities arise when BUs have similar buyers or channels, similar value activities like government relations or procurement, similarities in the broad configuration of the value chain, or the same strategic concept Even though the units operate separately, such similarities allow the sharing of knowledge Almost guaranteeing that no shareholder value will be created, too many companies are satisfied with vague prospects or faint hopes that skills will transfer Many companies have been defeated at skills transfer because they have not provided their business units with any incentives to participate Transferring skills meets the tests of diversification if the company truly mobilizes proprietary expertise across units The transfer of skills can be one-time or ongoing A company diversified into well-chosen businesses can transfer skills eventually in many directions

McDonald's facts

Ranked by Gartner as one of the top 10 supply chains By 2019, 37,000 locations (14,300 in the UD); 40% open non-stop 85% of restaurants are franchised -> moving towards 95% - Company owns land and building; leases location to franchisee - Typical location has $1.7M in sales and $150K in net profit - Ownership size varies (1 store, up to 2,000+) Growth plan in 2015 (digital, delivery, experience of the future) - Digital: purchased Dynamic Yield to optimize menu - Delivery: 9,000 locations offer delivery = EOTF: 8,500 locations offer "self-order" kiosks Lots of menu items: 170 itmes (2019) vs. 33 items (1990) Big Mac (1968), Egg McMuffin (1975), fresh salads (1987) Recently started "all day breakfast;" "need a good chicken sandwich" Who serving, What job performing, How getting it done Need a business model and a strategy Having a business model does not mean you have a strategy What are some of the obstacles to re-inventing a business model Financial: existing legacy assets, shareholder expectations Organizational: culture, existing structure, leader vs. manager Customer: existing brand promise and expectations

Core competency

Root system that provides nourishment, stability; allows you to access multiple markets What your organization knows: coordinating production and technology The 5-6 things your company does better than everyone else Binds existing businesses together and helps capture new opportunities More than just the sum of your existing products Allows you to take core products across multiple businesses and markets What the diversified company is uniquely good at that spans its disparate business What binds the company together, nourishes the development of core products that can be sold in different markets, business units

Sharing activities

Share resources (economies of scale and scope) Overcome organizational resistance ... (Background) Sharing activities in the value chains among business units Procter & Gamble, for example, employs a common physical distribution system and sales force in both paper towels and disposable diapers The ability to share activities is a potent basis for corporate strategy because sharing often enhances competitive advantage by lowering cost or raising differentiation Not all sharing leads to competitive advantage, and companies can encounter deep organizational resistance to even beneficial sharing possibilities Sharing must involve activities that are significant to competitive advantage, not just any activity Opportunities to gain advantage from sharing activities have proliferated because of momentous developments in technology, deregulation, and competition The infusion of electronics and information systems into many industries creates new opportunities to link businesses The corporate strategy of sharing can involve both acquisition and internal development

Making Healthcare Affordable (video notes)

Shetty does 1-2 surgeries a day; 6 days a week; colleagues do 4-5 daily 25-35 open heart operations performed every day (many on babies) -> largest cardiac care facility in the world Fast-growing, for-profit chain, offering top-notch surgery at rock-bottom costs Serves wealthy patients and some medical tourists, but the goal is to bring the latest advances in cardiac surgery to the poor "If a solution is not affordable, it's not a solution" Making it affordable is as critical as the surgery itself Dr. sees as many as 1,700 patients a day (many children) 80% of all medical bills paid out of pocket; must find capital resources ½ of country's population borrow money or sell assets to pay for procedure Narayan developed insurance program with farmer groups and state governments in South India; covers major medical costs; only 10 US cents per month for premium Insurance scheme covers about 10 million Insurance coverage (first of its type aimed specifically at poor) also significant income (25%) of Narayana's health Walmart-like approach to cost control, squeezing vendors for everything from surgical gowns to supplies to devices 32 hospitals across India Perform 12% of India's heart surgeries Sheer volume means more productivity and better surgeons Attrition rate among doctors nearly 0% Look for passion and compassion Not a charity; standard business practices are scalable (unlike charity); aims to become the world's largest hospital system within few years Even sophisticated surgery can be accessible to the poorest people in the farthest corners of the world

The Future of Google with Sundar Pichai (video notes)

Sundar Pichai in charge of Chrome, Android, apps, search, etc. Google i/o: conference that lets developers know what they're thinking about for the next year, which involves a lot of high-end computer learning Google wants to work on help solve big problems in users' lives; want to do it at scale and for everyone Core mission statement, to organize users' information, in the current world and mobile context; how Google can work better in the context of your phone; if you're looking for information in the context of using apps how Google can do that Google's advancements in machine learning gives everyone the power of Google's supercomputers right on their phone Photos is going to give all your photos in the cloud and use Google's computers to help you search them Android M has a new feature called "now on tap" that can search inside apps and give you suggestions for what you want to do Cardboard (VR) is using Google servers to stitch together 360 degrees, 3D virtual reality video Next step is to bring supercomputers to people that haven't had computers at all First computing platform that's going to touch people at scale At a core, Google wants to build products for everyone, so providing computing and making it accessible (which is why they're interested in Android 1, affordable Chromebooks, and thinking about connectivity over time) Project Loon: floating giant weather balloons over remote regions of the world to provide internet access Example of how Google is trying to reach the next billion; considers connectivity Google has shown interest in AI, robotics, and even curing death Software is increasingly playing a more critical role in solving things I.e. People are spending lots of time in cars, and these resources are poorly utilized -> long-term experimentation and research Google is trying to give everyone a supercomputer in the pocket; egalitarian vision of the future of computing Internet is a great equalizer, and Google search works the same as long as you have access to a computer with connectivity Not just building technology for certain segments; must drive technology as an equalizer and enabler to everyone around the world

Portfolio management

Superior insight to identify winners; sell off losers Private company or underdeveloped markets ... (Background) Corporation acquires sound, attractive companies with competent managers who agree to stay on The acquired units are autonomous The corporation supplies capital Top management provides objective and dispassionate review of business unit results Portfolio managers categorize units by potential and regularly transfer resources from units that generate cash to those with high potential and cash needs Corporation uses its expertise and analytical resources to spot attractive acquisition candidates that the individual shareholder could not The company provides capital on favorable terms that reflect corporatewide fundraising ability It introduces professional management skills and discipline Finally, it provides high-quality review and coaching, unencumbered by conventional wisdom or emotional attachments to the business Must find good but undervalued companies In the face of increasingly well-developed capital markets, attractive companies with good managements show up on everyone's computer screen and attract top dollar in terms of acquisition premium Simply contributing capital isn't contributing much A sound strategy can easily be funded; small to medium-size companies don't need a munificent parent Large companies no longer corner the market for professional management skills; in fact, more and more observers believe managers cannot necessarily run anything in the absence of industry-specific knowledge and experience Another supposed advantage of the portfolio management concept, dispassionate review, rests on similarly shaky ground since the added value of review alone is questionable in a portfolio of sound companies The benefit of giving business units complete autonomy is also questionable

Disruptive innovation model

This diagram contrasts product performance trajectories (the red lines showing how products or services improve over time) with customer demand trajectories (the blue lines showing customers' willingness to pay for performance) As incumbent companies introduce higher-quality products or services (upper red line) to satisfy the high end of the market (where profitability is highest), they overshoot the needs of low-end customers and many mainstream customers This leaves an opening for entrants to find footholds in the less-profitable segments that incumbents are neglecting Entrants on a disruptive trajectory (lower red line) improve the performance of their offerings and move upmarket (where profitability is highest for them, too) and challenge the dominance of the incumbents

T/F Each application was first designed to meet an internal need, then could be rolled out to clients

True Each application was first designed to meet an internal need, which allowed for an iterative development process and exhaustive testing Although originally built for internal use, all applications were designed and developed to be self-contained and were therefore easily integrated, both internally and externally This discipline provided Goldman the option to open applications to clients, if and when the opportunity was ripe Goldman could pursue new lines of business and new groups ... Approach (internal first, then external) makes sense because want to test it to mitigate risk of disappointment before scale; gets everyone on board first within firm

T/F 30% of the Goldman Sachs' workforce has a STEM background

True... company and industry can change Math/software engineers (data scientists, quant, algorithmic trading engineers) Strategy: automate yourself "helping others automate activities to allow you to do more interesting and more valuable things" Culture of continuous learning; learn through safe experiments (consultations with clients, regulators) with the right time horizons Taking Coursera classes - Huge innovation in programming language (currently Scala) - PhD in machine learning from 1990, foundation is same, but what is making it work at scale is relatively new "The algorithmic, modular, structured approach to problem solving is something absolutely everyone needs to learn" - Don't need to learn the code but must know what it's trying to do

How Search Works (video notes)

When you do a Google search, you aren't actually searching the web; you're searching Google's index of the web, or, at least as much of it Google can find Google uses spiders: software programs that start by fetching a few web pages, then follow the links on those pages and fetch the pages they point to, and follow all the links on those pages and fetch the pages they point to, and so on, until Google has indexed a big chunk of the web (many billions of pages stored across thousands of machines) Software searches index to find every page that includes the search terms Google asks itself more than 200 questions to determine what documents you want: How many times does this key page contain your keywords? Do the words appear in the title, in the URL, directly adjacent? Does the page include synonyms for those words? Is this page from a quality website, or is it low quality, even spamming? What is this page's PageRank? A formula invented by Google's founders (Larry Page and Sergey Brin) that rates a web page's importance by looking at how many outside links point to it, and how important those links are Combine factors together to produce each page's overall score and send you back your search results, about half a second after you submit your search Google takes its commitment to delivering useful and impartial search results very seriously; doesn't ever accept payment to add a site to its index, update it more often or improve its ranking When looking at your search results, each contains a title, URL, and a snippet of text to help you decide whether this page is what you're looking for See links to similar pages, Google's most recent stored version of that page, and related searches you might want to try next Might see ads along the right and at the top Google takes its advertising business very seriously: both the commitment to deliver the best possible audience for advertisers and to strive to only show ads that you really want to see Is careful in distinguishing ads from search results & won't show you any ads if they can't find any they think will help you find the information you're looking for

Restructuring

Willingness to intervene (Brazil's 3G cost cutting) Willingness to sell units when complete ... (Background) The restructuring strategy seeks out undeveloped, sick, or threatened organizations or industries on the threshold of significant change The parent intervenes, frequently changing the unit management team, shifting strategy, or infusing the company with new technology Then it may make follow-up acquisitions to build a critical mass and sell off unneeded or unconnected parts and thereby reduce the effective acquisition cost -> strengthened company or a transformed industry As a coda, the parent sells off the stronger unit once results are clear because the parent is no longer adding value and top management decides that its attention should be directed elsewhere When well implemented, the restructuring concept is sound To work, the restructuring strategy requires a corporate management team with the insight to spot undervalued companies or positions in industries ripe for transformation; turn the units around even though they are in new and unfamiliar businesses

Which two businesses did Intel essentially start?

The memory business (Samsung now leader) and also the microprocessor business (Intel still leads)

T/F Dell chose to virtually integrate (use the global supply chain), instead of making all the components themselves

True

Disruptive Innovation (video notes)

How a small, young company beats an industry giant on its own turf Creates new markets and reshapes existing ones To achieve growth in a fast changing world, you want to be a disruptor; don't be disrupted Big players focus on sustaining innovation; upgrading existing products and services to attract higher paying customers, but soon they start to ignore all the regular customers who just want simple low cost alternatives Entrepreneurial company jumps in with basic offering Big guys stay focused on more profitable customers and begin to overserve (add bells and whistles no one wants to pay for such as upgrades, cool features, new colors); disruptor improves its product to appeal to more people (easier to use, same price) By the time the incumbent notices, the disruptor has already started to take over the market I.e. steel minimills which first produced low quality rebar then moved to sheet still (stealing business from the large mills that had been dominant) I.e. Toyota and Hyundai launched with economy models then added luxury features/brands Only way for industry giants to fight back is to launch their own disruptive innovations To succeed, must treat the project as a separate unit (with a different business model and growth expectations) ask what job do customers need to get done; segment customers by job (not by product, market, size or demographics), and develop basic low cost ways to get the job done I.e. P&G's Crest White Strips (cheap do-it-yourself alternative to an expensive dental service)

Disruptive Innovation Explained (video notes)

Not a break-through innovation that makes good products better Transforms a product that was historically so expensive and complicated that only a few people with a lot of money/skill had access to it Makes it more affordable and accessible so a larger population has access to it I.e. first manifestation of computers took years to be trained to operate and cost millions; universities only had one Sequence of innovations (mainframe, mini, desktop, laptop, smartphone) has let everyone have access to it; difficult for pioneers to catch new waves Innovator's dilemma: in every company, every day, people go into senior management saying they have a new product (some could be better prices that could let you sell for higher prices to your best customers); disruptive has to cause you to go after new markets who aren't your customers and the product you want to sell them should be so much more affordable and simple that your current customers can't buy it Choice you have to make is should we make better products that we can sell for better profits to our best customers or worse products that none of our customers would buy that would ruin our margins I.e. GM and Ford faced when deciding whether to compete against Toyota or make bigger SUVs for more people; now Toyota has the same problem with Korea (who have won the low end market from Toyota) Met with Andy Grove from Intel and described theory Grove realized 2 companies coming from down who could work up so must stop The only way to look into the future is to have good theory because there's no data; every time you take an action it's predicated upon a theory By teaching managers to look through the lens of a theory into the future you can see the future clearly

In what environment would it make sense to be vertically integrated and have more control of your outputs?

Scarcity (i.e. cobalt as a limited resource; lacking critical parts to cell phone manufacturing)