Strategic Leadership - Class 7

Network Externalities

Growth Flywheel: The more customer you have -> more feedback you get -> better product -> per unit cost decreases -> leading to more customers

• Positive Feedback
• Increasing Returns
• Network Effects

Similar to growth flywheel, we have death spirals where customers leave the company at a fast rate. For example, when you have bank run, people take money out at faster rate.

Mankind Growth Revolutions

• Domestic System (Craft Production) - Each person focusing on all phases
  • Putting out system - Breakdown among 4 people, where everyone doing only 1 thing.
    • Factory System - less invontory, less in-progress work, no wagon
      • Industrial Revolution - Technology

Case 1 Apple

Why Apple was Close to Bankruptcy?

In 2003, Berkeley had ~50% Apple products, but IT @Berkeley didn't support Apple devices. Apple was the first proponent of BYOD.

Why Apple?

• Coolness
• Easy To Use
• Design

But they were true back in 90s, when Apple was close to bankruptcy. Apple didn't have good business.

	Apple	Dell (PC Industry)
Buyers		❌ Enterprise IT. They know what they are looking for. They don't care about coolness.
Complementors/Suppliers		❌ Microsoft, Intel - Because they were monopoly. They take significant money from licenses.
Threat of New Entrants		High. Anyone can start assembling.
Competitive Rivalry		High. Highly fragmented industry and everyone trying to do same thing.
Substitutes / Compliments	Much higher because none of the existing devices and software do not work with Apple devices.	High. There were a lot of new substitutes coming in software, hardware space in 90s and no one knew where the industry is heading. Across the board big companies such as HP, Compaq were making 0 profit.

Apple Issues

1. Apple was advertising that you can do all sort of things that you can not do on PC devices. This was not convincing enough for customers to switch from PC to Apple.
2. Apple tried to hold entirety of value generated by its Mac, but it failed.
3. It was costly to make a new OS ($500,000,000), but because of 97% PC market share, Microsoft was able to recover cost within 60 days. However, for Apple it would have taken 2.5 years.

Apple Recover

1. Every company is a platform and app. They have to decide how much they want.
   1. Apple launched iPod with Mac, but soon they launched iTunes to PC users so that PC users can join the Apple ecosystem.
2. First iPhone didn't have App store and it was not hugely successful. Only with next iPhone when they opened up App Store to everyone, that Apple grew.

Case 2 Walmart Logistics

Zara - small batch size, short cycle times allows Zara to get an idea whether a style sells or not, helping it figure out which product to produce more or less. Other companies these days have a lot of data, but their organization is not structured in a way that they can change course fast. If GAP which has cycle time of 7 months, then even if GAP has all the data, they can't do anything with the data. You need to have an organization which can take action based on data.

Random Facts

8. 4 Sided Market - Instacart has Stores, Shoppers, Products, Customers.

   Traditional View	New View (Platform Companies)
   Customer	Customer
   Supplier	Customer
   Employee	Customer
   Distributor	Customer
   Complementor	Customer
   Lender	Customer
   Government	Customer
   Equity Holder	Customer

9. Ideal HAAS alum is sitting at the intersection of Tech and Business. But, how much tech do you know need to know? Not much

   1. You need to have the ability to learn and get up to speed.
   2. You have to be connector.
   3. A generalist.

10. (Monolith Systems) Appliances	(Individual modules) Modularity
    	Modular Sound systems
    Need to replace the whole system	Can easily replace individual modules
    Distributor	If you have a system with asynchronous life cycles, then modular system makes sense. Similarly, if innovation is happening only in one system, then moduler system makes sense.
    Choice - In monolith you have 4 options to choose from.	If we have 4 manufacturers for a 4 step system then you have a lot of configurations. Similarly, At Chipotle you can have a lot of different types of burritos.