Hi, everyone. This is Monday Morning 8 a.m., a newsletter that goes out—as you guessed it—every Monday. You can listen to the audio version of this Monday Morning 8 a.m. episode by searching “Strategy Skills” in any podcast app!
In this newsletter, we have one goal: to help you distill the insights from the noise out there. So here are the big themes we’re noticing in the news this week and the deep insights you should be extracting from those themes.
A Tribute and Insights from Asia
First, we’re going to start with a tribute to the former chairman of Samsung Group, Lee Kun-hee, who passed-away last week after being in a post-heart attack coma for 6 years. He was responsible for Samsung’s meteoric rise, and he did what many people thought was impossible.
You’d have to go back to the ‘80s and ‘90s to understand the magnitude of how much South Korea has changed. Consider that during those years, Japan was a global powerhouse. Japanese electronics controlled the world. Conglomerates like Sony were buying up property and shares in corporate America. Eventually, Japan overtook the former Soviet Union as the second largest economy in the world.
At that point, no one had heard much of South Korea. We all knew Japan. We all knew China, of course, because so many household products were manufactured there. But South Korea wasn’t on the map as a corporate and economic power, or as the cultural icon that it is today.
Under the leadership of Lee Kun-hee, Samsung went from being an unknown company, to bringing South Korea onto the global scene. In 2006, Samsung surpassed Sony to become the number-one company in the global TV market, and it later surpassed Apple to become the world’s largest smartphone producer.
Many notable publications have published obituaries on Lee Kun-hee, who heralded South Korea into the limelight. Here is a great piece from Nikkei Asia about the legacy of Lee Kun-hee if you would like to learn more.
Speaking of Asia, Ray Dalio of Bridgewater Associates has written a piece in the Financial Times about how Western consumers, corporate leaders, and politicians aren’t really understanding the opportunity that is presented with China. We treat China as if it’s something that isn’t going to affect us. Ray is saying that we have to engage China and understand the opportunity there. But most importantly, we have to understand that just like the U.S. has shaped the world in the last few decades, China is going to do the same thing. We either engage China or be displaced.
The Financial Times also has great piece about the founder of Uniqlo—the ubiquitous Japanese clothing company—and how he built this company to compete as affordable but stylish clothing brand that was quick to market.
Now, what are the insights we can learn from these stories?
If Korea was able to transform its economy in the span of 30-40 years, what can you do in one generation? What can your family do? What can your business or firm do in one generation?
Many of us go into the workforce, just hoping to get a good job, have a good life, and retire well. But is that enough? Is that what we should be doing?
I had a 1-on-1 coaching session with a client recently, someone who was in the case interview program, went on to McKinsey, and then became the country leader for a major electronics manufacturer in Asia. We were talking about what he could accomplish in a generation. He’s only 30. In one generation, he will be 60. He’s already 20 years younger than most people on his management committee. He’s 20 years ahead of them, but those 20 years only matter if he uses that time. If time goes by and he does nothing, eventually that massive lead time will evaporate.
The insight here isn’t about South Korea, China, or Japan. It’s about looking at how much these nations, companies, and even individuals have grown in a such a short amount of time. Ask yourself: How do they do it? They’ve done tremendous things in the space of one generation. Why am I not thinking that way?
Electric Auto Sector
The other big theme we have this week comes from the electric auto sector, where Elon Musk has said that Tesla is looking to begin mining lithium. Why would a company backward integrate into the value chain? This means that it’s moving upstream, away from processed, finished goods where you get the maximum margin, and instead going toward the manufacturing of raw materials, where you get the lowest margin. Why would any company do that?
Is he doing this because he believes Tesla is going to learn all the skills to become a profitable mining company? Elon Musk is a smart guy; maybe he could do it. The question becomes: Is that the best way for Tesla to deploy its limited capital? Should they deploy $5 billion into lithium mining, or deploy $5 billion to build more factories in Asia, and to build self-driving cars?
When a CEO announces something like this, it’s not necessarily that they’re communicating what they want to do. Every time they communicate is an opportunity to signal their control and influence over suppliers and investors. Maybe this is a nudge to their suppliers that if they don’t get their act together, Tesla is going to do it themselves.
If you’re an FC Insider who has access to our new knowledge management system, you can see how we have analyzed a comparable precious metal that is used in the automotive industry to understand where and how disruption could occur in the value chain. If you’re not interested in precious metals, but you are in industry, you could use this to understand how disruption could occur for you.
Something I found particularly interesting was a piece in the Financial Times about Sanjeev Gupta, a former trader who, through a series of debt-fueled acquisitions, has built one of the largest conglomerates based out of the UK in manufacturing and industrial goods. He accomplished this in just a few short years. What’s interesting about Sanjeev Gupta is that when people started talking about him initially, I heard analysts say condescending things about him, such as “Who is this guy? I’ve never heard of him.” It’s as if an analyst not having heard or read about him, rendered Gupta meaningless.
It reminds me of an incident in January when a prominent epidemiologist was being interviewed on Bloomberg and was asked about the COVID-19 virus sweeping through China. He responded by saying that he’d never heard of the virus. In a way, he’s saying, I’m a really smart guy, and just because I’ve never heard of this virus, it’s not a threat. Of course, the virus never got the memo and didn’t seem put off by this guy’s lack of interest in it’s fatality rate, and it obviously swept the world.
Coal, Oil, Gas, and Steel
There’s a big drumbeat in the press that coal, oil, gas, and steel are dead businesses in the West. But that isn’t necessarily the case. It’s not that there’s no future for certain commodities in certain countries. Instead, there’s no future for that company to operate in that commodity given its cost structure. Another company with a better cost structure could do just as well with the same commodities. It’s just that the cost structure is too bloated. If you’re an FC insider who has was also granted ability to access to our Knowledge Management System, the full study on how to extract more value from a commodity group is available for you to read, use, and edit.
When someone tells you, coal is dead or a certain sector is dead, that’s not true. Don’t forget that entrepreneurs, investors and countries that still need to move up the value chain will buy these assets (coal, gas, steel, etc.). These assets might not be as big as they used to be and might shrink over time, but they are still profitable.
This is about understanding what is valuable and how capital moves. You don’t have to fall prey to this mentality, you just need to keep in mind what value is and how to utilize capital. FC Insiders can follow the mining start-up where we are deploying this very same strategy.
We did a podcast episode with Tim Koller, a senior partner at McKinsey who co-wrote the book Valuation. What’s interesting was that many people wanted us to talk about the mechanics of how to perform a valuation. But Tim will tell you that the most important thing in corporate finance is understanding that capital is like blood in the human body. The job of leadership is to figure out how to deploy that asset.
Tech and Media
There was an article in The Wall Street Journal about Jeff Zucker—the head of CNN, which is now a part of Warner Media after AT&T bought a lot of media assets in the last year to try to become a top-tier streamer—and how his role is diminishing at CNN. Another piece was about the demise of Quibi, a short-form video streaming service.
I don’t want to talk about why they failed. I want to talk about why this is happening, because everyone is talking about Netflix. So, what is Netflix doing? Essentially, Netflix is employing a two-pronged strategy.
First, Netflix is massively driving up production volume with new shows and uses its capital to suck talent into its productions. Given the time lag for talent supply to catch up with demand, there’s going to be a shortage in the market for people who can make shows, and all these people trying to get into streaming have to pay more because there’s a shortage. But they also have to pay more because Netflix is paying more. So, essentially, Netflix has forced a steep increase in the cost of production.
Secondly, Netflix has quite literally flooded the market with content. What happens when you flood the market with anything? The price goes down. Given the number of streamers and the fact that you can only consume so much content, people are going to drop some subscriptions.
For instance, when Netflix launches a flashy show, these other streaming services respond by launching flashier shows, which drives up the cost of production further, and further commoditizes the value of streaming. But maybe they ought to be doing something else. Maybe they should instead offer to supply Netflix like Nickelodeon and Viacom have, or maybe switch to low-cost content like documentaries, or maybe their company shouldn’t be in the sector at all.
The point is that we live in a time when it is too cool, and too easy, to be a streamer. But everyone who enters that market drives up the cost, floods the market, and lowers the return. When the shake-up happens, it’s going to be Netflix that is left standing, along with a few others. Many other companies will fold and guess who’ll be there to get them on the cheap? Netflix.
A lot of decision-makers are missing this part of the strategy, so remember, always see if you can make out the overarching strategies of the companies in your field or sector.
A Day in the Life of a Leader
In a recent conversation with another 1-on-1 coaching client, I was trying to get them to understand what it means to learn the skills of a strategy partner. This client was very smart and talented, but he was being held back because he likes to spend a lot of time doing analysis by himself.
I want you to understand the difference between being an analyst and being a leader. Realize that you cannot be an analyst in industry forever. Once you get to a certain level, you have to act like a leader. The faster the better.
What is a day in the life of a leader?
A leader controls their time. No one tells them what to do. They decide what’s important, and they let other people know. They don’t let one email dictate their agenda for the day.
A leader makes numerous decisions while attending meetings, reviewing progress from teams, and meeting clients, but there is actually very little time for a leader to do detailed analysis on their own. A leader cannot spend weeks on a personally led analysis, but they still must make the correct decision. To be a leader, you have to delegate the analysis and be okay with doing that. Instead, what they need to be able to do is to understand something quickly, ask the right questions, and act based on their judgment and their hypotheses.
A leader has the skills of a partner. If you are an FC Insider, look at the corporate strategy and transformation study. The overall thinking for that very complex engagement was designed in a single day. That is the skill a leader needs.
You need to think like a strategy partner. Make decisions quickly, but correctly. Leaders are rewarded when they implement the right decision and generate the returns.
Leaders do not manage anything. Leaders are always building or growing a business. They don’t manage things, they grow it. A leader who cannot make something better is going to be replaced. To grow or make something better, you’re always making a set of decisions. Leadership must be your end game.
Educational Sci-Fi Novel on Productivity Strategy: Mavis
We’ve released a new educational novel called Mavis. Mavis reads as a dystopian sci-fi thriller about a productivity paradox. But, ultimately, it is a novel about productivity strategy.
If you want to understand productivity, you should read Mavis, which is now available on Amazon. We also released The Strategy Journal, which guides readers, step-by-step, to understand the problem, develop a structure, develop hypotheses, design the tests for the hypotheses, track daily and weekly tasks, plan the message for your team and manager, manage the project, guide you through critical update meetings, calculate the benefits case to convince your colleagues and start the pilot implementation of your recommendations.
Both books are available on Amazon! If you end up reading Mavis, loving it, and supporting it with the review on Goodreads (and Amazon reviews are, of course, very much appreciated) by November 15th (we are extending the deadline as per your requests), email a link to [email protected], and we will include you when we send out a gift to our most loyal readers, which is one-month access to the accompanying course. If you end up reading The Strategy Journal, loving it, and supporting it with the review on Goodreads (and Amazon reviews are, of course, very much appreciated) by November 15th (we are extending the deadline as per your requests), and you supported all previous books, email links to [email protected] as well, and we will include you when we send out a gift to our most loyal readers, which is one-month access to a different accompanying course.
New Release: Advanced Knowledge Management System
And the other big update that’s coming up is we are launching an advanced full-knowledge management system, which is going to have editable PowerPoint documents, including editable proposals (which can be downloaded as PDF) available as an add-on service to selected FC Insiders. But it’s much more than that. As many of you know, the ability to be able to see a complete study, use it as a blueprint for the work you are doing is often a difference between not only whether you’re a successful consultant, but whether you’re successful in industry. Same with proposals.
It’s one thing to want to meet a client about strategy.
It’s another thing to know how to sell it and to see a blueprint.
So let’s see how this new Monday Morning 8 a.m. format goes. Every week we will look at 4 themes. What are the big stories and what are the big implications. Let us know if you like or dislike the style.
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Have a great week,
Kris & the rest of FIRMSconsulting team (Monday, 11/02 8:00 AM)
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