Strategic Leadership - Class 6

Concepts Applicable in Everyday Life

1. Efficient Frontier

2. Goldilocks principle - when you have a choice variable that is linear, there is a sweet spot which is just right e.g. soup temperature could be too hot, just right, too cold.

   1. Marginal Analysis - When the marginal benefit drops down marginal cost, you drop the call.
   2. When the average phone call increases, it could be either benefit increased or cost decreased.

3. Information and Decision Rights

   1. Allocation of Decision
      1. As you move decision to central location, cost of wrong decision goes high.
   2. Org Chart

4. Francising Model separates out the decision making so that decisions which are crucial remains central. It works for fast food chain because sitting in central office, you don't have knowledge that people at periphery have.

5. We want people to talk to their group and not talk to people from other group.

D&Q Fast Food Francisee Chain

Central Decisions	Franchisee Decision
Size of burger, coffee temp.	Food Pricing
Quality of food	Location
New flavors, receipe
All franchisees benefits	Individal benefit incentivized

Why Starbucks own their Stores?

Why they didn't go franchisee model? Because Starbucks came in 1990s, they had access to more data about customer preferences. With Internet information travels faster. Also, people are driving more.

General Moters and Fisher Body

GM outsourced body making to Fisher. This model has problems because anytime you change an order, you need to update the contract. To resolve this, it's better to merge these two companies.

Case Disney

Why Disney does not Outsource their Resorts to Marriott?

Because Disney is in story business and their story narrative keep on changing and evolving. Their resorts have a story line and if in an year a story flops then they need to change their story of resorts faster. If you outsource resorts to Marriott, you can't execute it this fast as storyline is hard to put in contract.
Moreover, How would you monitor Marriott's employees are delivering the experience that Disney wants from its resort? It's super hard.

Ask these questions	Outsource or not?
Whether you can put all aspects of quality in contract or not.	No, if you can't.

What led to Significant Increase in Disney's Yearly Revenue?

1. In 1980s, the increased ticket price and park's capacity. Open on Sunday.
2. Started yearly release cycle of Disney movies and they just didn't launch a moview, the milked the whole story by merchandises, resorts.
3. Once they ran out of their stories, they started acquiring other companies so that they had newer stories.
4. Once you are super big, you need to have super good accountants so that you can easily see which departments are doing well vs which are not.

Case BMG

Background

1. 4 Big players in music industry. Why?
   1. High - Barriers to entry
   2. Economies of Scale. Big companies

Artist
│
├── BMG
    └── Records
    │
    └── iHeart Radio