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GE and the Belief in Management Magic

This report describes the history that led to GE's decision to split into three companies (WSJ Nov. 2021). To me the attitude at GE contrasts with Porter's definition of strategy. Here are some money quotes:

1. GE’s corporate culture prided itself on elevating management to a kind of science. The dissolution of the company, however, points to a reality many executives don’t like to admit:
   
   Management matters a lot, but it doesn’t matter as much as you think (especially if you are management).
2. Business historian Leslie Hannah, analyzing the 100 companies that had the largest stock-market value in 1912, found that only 21% remained among the top 100 in 1995. Almost half had disappeared ...
3. The struggle to integrate some of those lumbering acquisitions, and sluggish growth elsewhere at the company, forced GE Capital to become ultra-aggressive. Management had no choice; smooth earnings growth had to come from somewhere when other parts of the company were faltering. GE Capital “could get higher returns only by shouldering more risk,”
4. Decades of success had bred complacency. Rita McGrath is a management professor at Columbia Business School who studies corporate change and has consulted for GE. In the early 2000s, she says, a common attitude among the company’s managers was: “It doesn’t matter what we make; it’s how we manage.”
   
   GE was betting that “management technology would always save them,” she says.
5. But a management system optimized for wringing out incremental efficiencies couldn’t make the leap from the Industrial Age to the Information Age.
6. So industrial conglomerates are on the wane, at least for now. The myth that great management can always work miracles should be, too.

Cake Liberation Day

This opinion states that requiring a home bakery to have a "commercial grade kitchen separate from a home kitchen" "intended to reduce competition for commercial bakers" WSJ, Oct 2021). One of Porter's three common approaches to create a competitive advantage is to reduce the intensity of competition. 

Why firms need strategies

 

Life at the top is often fleeting (WSJ, Sep 2021)

The World Relies on One Chip Maker in Taiwan, Leaving Everyone Vulnerable

TCSM is almost a monopoly in some sectors fo the semiconductor industry. (WSJ,June 2021) What does the 5-forces model say about its prospects for earning a high rate of return? What do you see as its strategy?

Here are some money quotes.

1. "Its technology is so advanced, Capital Economics said, that it now makes around 92% of the world’s most sophisticated chips, which have transistors that are less than one-thousandth the width of a human hair. Samsung Electronics Co. makes the rest. Most of the roughly 1.4 billion smartphone processors world-wide are made by TSMC.
   
   It makes as much as 60% of the less-sophisticated microcontrollers that car makers need as their vehicles become more automated, according to IHS Markit, a consulting firm."
2. "Semiconductors have become so complex and capital-intensive that once a producer falls behind, it’s hard to catch up. Companies can spend billions of dollars and years trying, only to see the technological horizon recede further.
   
   A single semiconductor factory can cost as much as $20 billion. One key manufacturing tool for advanced chip-making that imprints intricate circuit patterns on silicon costs upward of $100 million, requiring multiple planes to deliver."
   
   TSMC’s own expansion plans call for spending $100 billion over the next three years. That’s nearly a quarter of the entire industry’s capital spending, according to semiconductor research firm VLSI Research."

Does a walled garden = a castle surrounded by a moat?

This analysis of Apple mentions "Steve Jobs’ (sic?) 2010 vision to 'tie all our products together so we further lock customers into our ecosystem.'” (WSJ, June 2021)

HBR on Strategy

 Casadesus-Masanell, Ramon. 2014. Introduction to Strategy. HBR

Casadesus-Masanell, Ramon. 2014. Industry Analysis. HBR

How to become a billionaire

Paul Graham says that the best way to secure YC funding is to convince the investors that "what you're making will ever be something a lot of people want" (Paul Graham, Dec. 2020). 

Here are some money quotes:

1. "So this is one thing the YC partners will almost certainly dig into during your interview. Who are your first users going to be, and how do you know they want this? If I had to decide whether to fund startups based on a single question, it would be "How do you know people want this?""
2. "The worst advice I ever heard about how to succeed in a YC interview is that you should take control of the interview and make sure to deliver the message you want to. In other words, turn the interview into a pitch. ⟨elaborate expletive⟩. It is so annoying when people try to do that."
3. "If professional billionaire scouts know that exploiting people is not the skill to look for, why do some politicians think this is the defining quality of billionaires?"
4. "The most reliable way to become a billionaire is to start a company that grows fast, and the way to grow fast is to make what users want. Newly started startups have no choice but to delight users, or they'll never even get rolling. But this never stops being the lodestar, and bigger companies take their eye off it at their peril. Stop delighting users, and eventually someone else will.

Is GM responding to economies of scale or scope?

"For years, the mantra in the capital-intensive car business has been that bigger is better. But in nearly seven years running GM, Ms. Barra has found success with an unlikely strategy: shrinking a company that for much of the 20th century was the nation’s biggest corporation by revenue and profit."

"GM now makes cars or parts in just nine countries, down from 25 before Ms. Barra took over, and employs 164,000 workers today, 25% fewer than before. Her get-smaller approach is especially unusual because it came at a time of prosperity in the car business.

Global industrywide auto sales have risen 9% since the year Ms. Barra became CEO. GM’s sales fell 25%."

"The moves have, until recently, helped GM notch record operating income and profit margins."

WSJ, Sept. 2020

The article also discusses GM's attempts to position itself to prosper as consumers move to electric vehicles.

Who produces Kirkland products for Cosco?

In many cases, the same folks who produce the brand name product. (Napkin Math, July 2020). Except, Kirkland product must be 1% better.

Does Occupational Licensing Improve Quality?

This article says, "No" (NBER. 2020). But, licensing does increase price.

A new strategy, an extension of current strategy, or no strategy?

IHOP is opening a chain of fast casual restaurants (CNN, Dec. 2019). Is the decision an extension of the activities on which they currently focus, a decision to alter the activities on which they focus, or a failure to say no? How about adding burgers to the menu?

"For IHOP, new restaurants like Flip'd are part of a three-pronged growth plan. The chain is also targeting off-premise dining and promoting its non-breakfast food items — like burgers — to draw more customers into stores."

This article in the WSJ (Nov. 2019) illustrates the importance of focus. Trying to do everything => do nothing well. It also illustrates that entry => lower profits.

Buzz words or reality at McDonald's

The WSJ reports (Nov. 2019) that the new CEO at McDonald's is now responsible for implementing the strategy he helped craft. "[E]xecutives say [the strategy] will provide a competitive advantage over time."  The article mentions that CEOs usually have operational experience. Here are two questions.

1. Does the article describe the activities on which McDonald's will focus to create a competitive advantage?
2. Could lack of operational experience increase the ability to craft a strategy?

Are strategic plans worthless?

Think about the strategic plan at your organization.

1. Does the organization publish the plan in a document?
2. Do most of the "workers respond to the plan by nodding and smiling in public while sighing and rolling their eyes in private"?
3. Does it begin "with an anodyne statement of principles, lists several general goals, and finally recounts a series of initiatives that the institution will undertake to realize these objectives"?
4. Does it state "that the company 'seeks to be a leader'”?
5. Does it set “stretch” targets?
6. Does it clearly identify where the activities on which the firm will focus and which it will avoid?
7. Does the plan align with the organization's budget?
8. If the plan and the budget diverge, which is a better guide to the firm's priorities?

This opinion in the WSJ (Oct. 2019) criticizes what many organizations call a strategic plan. The critique resonates with me. Many strategic plans are not plans and even fewer are strategies, imo.

One relevant comment to the post follows.

"It is axiomatic: an organization's "strategy" is where it spends its money. The corollary is: since every organization spends money, every organization has a strategy. Not every organization has a PLAN on how to spend money. A company that has no plan for spending invites (and usually gets) chaos, dissension, and sub-optimal returns on spending and investment. Some run out of cash. Others run out of customers.

"I've been involved in strategic planning for 40 years. Like all management pursuits, its been wasteful, enormously helpful and everything in between. It is vastly under-rated, and under-used, as a communication tool in large complex organizations. Good planning works when it helps focus choices and resource use. When you shoot at every leaf that moves, you run out of ammo. Fast.

"That people have been subjected to lousy processes isn't an indictment of planning; it's an indictment of, well, lousy process."

In this opinion in the WSJ (Oct. 2019), Andy Kessler discusses the role of technology in creating a competitive advantage and strategy.

An example of using the power of the government to raise barriers to entry

Why would Kentucky have a law that lets incumbent firms stifle entry into the ambulance industry? One answer: to help the incumbents earn profit in the long run.

Does Goldman have a strategy?

The WSJ (Sept. 2019) reports the trouble Goldman Sachs is having adding consumer banking to its previous core businesses of trading and deal making. Questions arise.

1. To what did GS say"NO" previously?
2. To what does GS say "NO" now?
3. Are the activities on which to focus for trading and deal making the same activities on which to focus for consumer banking?

When Netflix sharpened its strategy

This account in the WSJ (Sept. 2019) describes when Amazon almost acquired Netflix. The result is that Netflix said no to selling DVDs.

Walmart = the most successful social welfare system ever implemented

"Walmart is one of the wonders of the modern world, built from scratch in a hyper-competitive environment, scaled from nothing to the largest company in the US by revenue and by headcount, all resulting from a singular vision of saving everyday people money with everyday low prices. It is the most successful social welfare system ever implemented, saving billions and billions of dollars for everyday Americans without costing taxpayers a dime. It is a testament to the power of compounding interest, to the power of a focused plan executed violently for decades" (Zack Kanter).