Intro to Strategy

Day two, and I've already failed to update my notes every day.

This weekend I'm hoping to catch up in one go.

I'll do as much as I can,

and if there's something I genuinely feel I didn't get much out of, I just won't write it up.

Case Summary

Disney's long-term success rests on a "synergy flywheel" (Synergy: businesses driving one another) that runs from content (IP) → distribution → parks and consumer products (Parks & Merch) → and back to content.

Michael Eisner took over in 1984 and revived the company with strong management and the "20-20" targets (20% annual growth in ROE and profit); but in his later years, over-diversification, micromanagement and misallocated resources led to slowing momentum and governance controversies. After that, Bob Iger extended the company's run by "buying big IP, cutting non-core businesses and betting on streaming (DTC)," but making streaming profitable became the new problem.

Case Discussion

Now: linear TV is declining, streaming is hard to make profitable, and parks CAPEX is high, forcing the company to rebalance.

Main tensions: the long-term synergy flywheel vs. over-diversification and organizational governance; content scale vs. streaming cash flow.

Some important facts about strategy

1. Performance varies enormously — it's not "everyone's about the same." The average return on invested capital of US companies in 2013–2022 follows a "fat middle + long tail" distribution, with the top and bottom pulled far apart; most companies' ROIC sits around 10%.

2. Returns really do differ a lot across industries: cross-sectional differences in ROIC are significant — choose your industry carefully!

3. Industry ≠ destiny

Within the same industry, different strategies lead to equally "sharp divergence" in performance; which industry you enter matters, but what matters more is "how you play within the industry"; advantage isn't static — it's also about "how fast you respond to change."

4. The main factors that affect company performance

Firm effect 40% = the company's own choices and activity system, including: whom you serve, what you sell, how you price, how you go to market, how you run your processes, what incentives you use, and where you put your money.

Dynamic effect 36% = external/internal dynamics that change over time: technology curves, user preferences, competitors' plays, distribution rules, regulation and the macro environment change the game over time.

Industry effect 14% = the average level of the industry structure: different industries have different "ceilings/floors" (different Five Forces and profit-pool positions) — "industry matters, but it isn't destiny."

Corporate effect 10% = the effect at the group/parent level: in multi-business groups, capital allocation, sharing of talent/brand/data, governance and incentives can boost or drag down each business unit.

What is strategy?

A set of mutually reinforcing choices that lets a company find its niche in its industry and earn long-term returns.

Strategy is responsible for three things: 1. Look at the whole picture from the outside. Size up the environment of an organization in its entirety. 2. Configure the company's internal choices into an "interlocking" system. Configure all of a firm's internal choices to attain a competitive advantage and create value within an external environment 3. Develop sustainable competitive advantage amid internal and external change. Sustain a company's advantage over time in the face of internal and external dynamics

See the whole picture outside → configure all choices inside into a system → keep the advantage "alive" through change.

Strategy isn't writing down a goal at the start of the year — it's a closed loop of "external–internal–sustainability."

The first thing: see the whole picture

What to look at? Find the profit pools: see clearly in which link, which segment and which region the money is really being made. Identify the "gates": who controls the distribution shelf, standards, data and payments — these determine your bargaining power. Anticipate shifts: technology S-curves, regulation, macro funding conditions, changes in user habits — the factors that rewrite the rules of the game. Set clear boundaries: tell the team what not to do; make your trade-offs dense.

How to look? Customer needs/scenarios (Jobs-to-be-done): in what situations is it "you or nothing" for the customer? Direct rivals & substitutes: who is attacking you today; who might cross over and attack you tomorrow? Distribution/channel shelf: platform take rates, traffic rules, conversion costs. Supply and bargaining power: upstream concentration, key scarce resources (talent, compute, IP, licences). Rules/regulation/tax: market access, compliance costs, cross-border restrictions. Technology curve: which stage you're in (emerging/accelerating/mature/being replaced) and its impact on cost and experience. Capital and macro: interest rates, exchange rates, risk appetite — who's paying. Complementors: who can make your product more valuable (ecosystem partners, content/IP, hardware).

Answer three questions: Whom do you serve? How will you win? What won't you do?

Common mistakes: looking only at the industry "average" and ignoring divergence among peers and differences between segments. Treating rivals as the environment and forgetting that platforms/distribution/regulation are the bigger chessboard. Looking at the static picture, not the dynamics (review key metrics and triggers quarterly). Information too scattered, never landing in decisions (enter/exit, raise prices/cut costs, M&A/partnerships). Too much detail, missing the first-principles questions: where's the money, where's the power, where's the change?

The second thing

Configure the company's internal choices into an "interlocking" system (to win in the external environment)

Internal choices include 8 levers

1. Customers and value proposition (who, and what wins them over)

2. Product/service mix and pricing (what to sell, how to bundle, how to charge)

3. Channels/distribution (direct sales? agents? platforms? who controls the shelf)

4. Operating processes (delivery, SOPs, quality standards, SLAs)

5. Core capabilities and assets (technology, data, brand, IP, supply chain)

6. Organization and talent (reporting lines, roles, hiring standards)

7. Incentives and KPIs (where the money points, what counts as winning)

8. Capital allocation (what to invest in, what not to; the split between R&D/capacity/M&A)

How to "configure it into a system"

One chain: "acquire customers → close the deal → deliver → repeat purchase/referral" as a single chain

At each link, keep only the actions that make the next link stronger!

Set reverse constraints: pair every choice with a not-to-do list

For example: no ultra-customised work, no loss-making customer acquisition, no low-margin channels

Clean up conflicts: wherever KPIs and incentives run counter to the strategic direction, fix the incentives first

For instance, if you want "high repeat purchases," don't just pay "new-customer commissions"

3 signs of a good system

A clear customer profile, and fast team decisions

A new hire can run 80% of the processes within 2 weeks

Optimising a single point amplifies along the whole chain rather than being cancelled out

The third thing: build "sustainable competitive advantage" amid internal and external change

No single trick in strategy works forever — you change shoes as you run: sensing change (external + internal), running small experiments, and reallocating resources all at once, so the advantage carries through cycles.

Where does change come from?

External: technology curves, customer preferences, platform/distribution rules, regulation, interest rates/funding conditions, competitors' plays.

Internal: the organization slowing down, bloated processes, incentives drifting off course, generational turnover in talent, ageing products.

4 mechanisms for staying alive (S→S→R→N)

1. Sense: set up a quarterly strategy hour

Customers/rivals/technology/regulation/channels, etc.

2. Seize: place small bets (pilots)

Set stop-loss lines and success thresholds, using time, cost, retention, etc.

3. Reconfigure: set a hard rule of reallocating 20–30% of the budget each year

Move money and people from old projects to new directions that have proven effective).

4. Nurture: write successful practices into SOPs and build them into the shared platform

Data, tools, templates, etc., so that onboarding new people gets cheaper and cheaper.

6 "sources of sustainability" — pick 2–3 and take them to the extreme

1. Scale cost advantage (the more you do, the cheaper it gets)

2. Network effects (the more users, the better it works)

3. Data/model advantage (others can't copy it)

4. Brand and mindshare (first-choice position, courage to charge)

5. Switching costs (painful migration, contractual lock-in, ecosystem lock-in)

6. Scarce assets (exclusive content/IP, licences, channel positions, rare talent)

Common mistakes (every single one hits home for me...)

Only adding projects, never cutting them, leading to an "overloaded stack" (a habit I often fall into❗️)

All metrics are "lagging indicators" (revenue), with no "leading indicators" (retention, repeat purchases, TTM)

A culture that only talks about "trial and error" but sets no stop-losses ends up as a "collector of unfinished projects"

The "moat" stays a slogan, with no concrete practices or quantified targets

When should you change strategy?

1. Your core customers' needs/usage scenarios have changed

2. Distribution rules have changed (platform take rates, traffic entry points)

3. Unit economics start deteriorating and haven't been fixed for 2 consecutive quarters