Ready, right? Okay. So usually I plan to start with a Kahoot! quiz at about between three and five parts. The Kahoot! quizzes count for your final mark. Not so much getting it right, but participating. When you sign up for the Kahoot!, you guys have all done Kahoot! before, right? Use the QR code or the little code to go onto the website. We'll share it with you in a moment.
And once you are in, please put your name as either your real nickname or something that we recognize you as because it's recorded. So we know who's actually done the Kahoot! quiz. If your name is not signed into the Kahoot! quiz, you lose a point for attendance on that day. Okay. So welcome, guys. This doesn't look like 60 people. Let's see around that number. Okay. Great. Well, welcome. Welcome to your first course at Sasin. I will talk a little bit about it in a moment and I'll introduce myself and do all of that fun stuff. I would like to start off with a quiz. So this course is on business strategy, but this quiz is a little bit on strategy, but a little bit on general knowledge.
I don't expect you to get all of it right, but as you saw on the slide as you were coming in, this little capybara that I have specifically chosen for your class — if you win the Kahoot!, you get one of these, one for each class is available. And when you submit it back to me, you get one point extra on your total grade. Okay. So there's a little bit of motivation and incentive to do the quiz.
We can get started. Thanks, Jared. Ching-Ching, you should be able to access online the QR. Okay. I can see you in the background. Welcome. Okay. Thank you. How well do you know each other? That's a question I'm going to ask you in a moment.
Question number one: what does the name SASIN stand for? You guys have just been through orientation, right? Very good. In Sanskrit, the king of the rabbits, right? I'm sure they told you many times why we're called the king of the rabbits, right? Okay. Great. Let's see who got that fastest and correctest. There you go. Excellent work, Tai. Good. Let's see if you can keep your lead. And honey coming up behind.
Which tea shop in Taiwan originated bubble tea? There's one for entrepreneurship and innovation. There's number two. How many of you drink bubble tea? Most of you, I assume, right? I mean, it became a craze for quite a long time and it's still doing pretty well here, but there are different companies that have now taken the lead in that business. Okay. Let's see who got that. Who's ahead? Oh, Jenny over there in the back there. Okay. Cool. Excellent. Nice.
Next question. What does ASML produce? Should be a very well-known company to all of you studying business. How many of you have not heard of ASML? ASML is the only company in the world that produces the photolithography machines that produce semiconductors. So it supplies Nvidia and it supplies Siemens and it supplies everybody. It is the only company that does it. So it's a very important company in our current economy. It's a Dutch company. Very useful to know who they are. Okay. In fact, when you do digital transformation or something with Alvin, who's a friend of mine, he does some work with ASML at the moment so you can ask him about them.
Okay. Let's see who's ahead now before the final question. Pin with pin veil. Okay. Excellent. Final question. Which industry contributes the largest share of Thailand's exports? Should all know this, right? Rice, tourism, electronics, textiles. Seriously, guys, how backward do you think our country is? What do you think, we just sell rice? Well, think about it.
Anyone know which is the largest company on the SET? Ah, there you go. So largest company on SET is Delta. Delta Electronics, right? 50 to 60% of Thailand's economy is based on OEM manufacturing, of which a large chunk of that is electronics. In fact, I believe almost all the Nikon camera boxes are made in Thailand. The lenses are not made here, but all the Nikon cameras are made here. I mean, 80%. I don't know if you guys were — I mean, you guys are a bit older than the MBAs, right? Do you remember the floods in 2011 in Bangkok? And in the nearby areas, I don't know if you noticed, but when those floods happened, especially in Ayutthaya and Rayong, computer memory prices went up by 30%. Why? Because Thailand produces 80% of all hard drives in the world. Something we should be proud of. Seagate, Western Digital, they all produce here. So that's why when things like that happen, it can cause serious problems, because they are geo-located.
So yes, right. Rice and agriculture is about 15% maybe, tourism about the same, but really the bulk of it is electronics. Textiles and garments negligible, really. Okay. Next, let's see who's up. This is the final question. So the winners are: third place winning nothing — Pin. Good work. Juke or Jug, okay great. And the winner is Pink, right in the middle at the back there. So keep this and you will get 1% when you return it, to add to your total mark. So if you're on the edge of a grade, it might help. Okay. So that's how we're going to start every class. Quick quiz, right? So make sure you register for that. If you want your friends who are not here in time to do it, you can send them the QR code. I don't mind if they're on their way here.
So the course is called Management and Business Strategy. Welcome to your first class. I am really delighted. I've been fighting for a long time to have strategy put right up front in the curriculum because I think before you do things like finance and marketing and all of those things, it's really important to have a big picture of how business works and how you can run your businesses better. And you can then use finance and all of those other things as tools to improve your business. My perspective is strategy should be an overview of what business stands for.
Now the way I work is I try not to talk too much. There will be lots of group work that you'll be doing and you'll be feeding back to us from tomorrow. I'll make sure there are flip charts in the room today. We don't need them because I'll be asking you to work in your groups. And in fact, I'm going to ask you to set up your groups in just a moment.
So what is this course about? We've got two people whose titles say strategy, right? In fact, three people. Who has a title that says strategy? I was looking at your business cards, like head of strategy of somewhere and somewhere. Tom, what's your title? Assistant to CEO. Excellent. Who else? Who else is a strategy expert? No one. Do I need to find Xiong, right? Yes. Corporate strategy. Why are you hiding at the back pretending you know nothing about strategy? These are the people that you're going to turn to as you do your work.
So I like this quote: "The essence of strategy is choosing what not to do." Michael Porter is known as one of the key thinkers on business strategy over the last 30 years at Harvard.
So let's start off with a little bit of introduction. How well do you guys know each other? Do you think if I were to ask you to name everyone else in the class, what percentage of the class do you think you would get? A hundred? Anyone? 80. I haven't even met you and I've got like 90%. This is your opportunity to get to know everyone. And so I'm going to give you a chance to do that in just a moment, but this is me.
So I trained as a clinical psychologist a very, very long time ago in South Africa. I was born in Sri Lanka, grew up in Zambia, moved to South Africa in my teens. That's where I finished my education and started my career. My current role — actually the title has changed — I'm now head of custom instructional design. My full-time job at Sasin is executive education, where I do business development and I design programs and I deliver programs for various corporate clients around Thailand and some across Asia. I also have a small company that I run to do leadership advisory, which is the company I set up when I first came here 15 years ago. And I also do other work for other executive education organizations. I used to do a lot of work for Duke, now Emeritus Headspring, which is an executive company that's owned by the Financial Times.
My core focus areas are these. I'm going to be teaching a turbo course on negotiation in November, but my main course here is a core course on strategy, which is what I've been doing for the last — I've been with Sasin since COVID. So 2020, end of 2020, I would say.
And I must say my experience is I teach both the MBAs and the EMBAs. And what I really like about teaching you guys is that you come with such a wealth of experience already that will really help you understand these concepts and implement them in your workplace. Because my aim for this course for you is that you walk away with some practical skills and tools that you can use immediately as you think about your companies. I don't want this to be a theoretical exercise. You've got the textbook. You all have the textbook, right? I will expect you to read the textbook. It may be included in some quizzes and things, but really I don't teach out of the textbook in the classroom because then I might as well not be here. My aim is to try and bring strategy to life by sharing some examples with you, sharing some stories with you, and then getting you to try and use those in the way you think about your company and your context.
So please feel free to ask questions. Please feel free to disagree with me and challenge me. As long as you have a rationale for it, I'm fine being challenged. I'm not fragile. So these are some of the clients that I've worked with. There's a lot more. I just put a few in there, some of the more recent ones.
So the core structure is introduction to strategy. And I will introduce you today to one of the key frameworks that will help you in thinking about strategy. And that's the Hambrick strategy diamond, which talks about five dimensions of strategic choices that you need to make.
We then talk about setting strategic direction. And there we really focus on purpose, vision, mission — understanding why the company exists and why it does what it does before you start thinking about how you do it is really, really important. I'd like us to spend some time on that. We'll do that tomorrow.
Then we will do strategic diagnosis of the external environment. And there we will use — I'm sure you're familiar with some of these — PESTEL and Porter's Five Forces, and I'll be doing some foresight work with you. That's just a picture of the futures wheel, but I'll be doing some foresight work with you to start thinking about how do you think about the future.
Then we'll do some internal diagnosis. SWOT is a very, very common tool that you probably are all familiar with. I also find that many people don't use it as effectively as they could. And there are things to think about in your criteria that will help you make SWOT something that's useful, that you can use actively in your workplace.
Then I will talk about something that I introduced a couple of years ago — this idea of competitive positioning. And there I will introduce you to the seven strategic powers by Hamilton Helmer, who I think is faculty at MIT now, but he used to be a very long-serving consultant at Bain. And he identified seven approaches that allow your company to be sustainably competitive over the long term, not just by having advantages over others, but also having a barrier that prevents others from catching up with you, whether it's IP or whatever it is. And we'll talk about those because those can be very useful for thinking about how your company manages its business into the future.
We'll spend some time on executing strategy because it's all well and good to have all of these wonderful ideas and thoughts, but you then have to make it real.
So this is what we're going to do for the first six lectures. The seventh lecture is your group presentations, which is your assignment that counts for, I think, 20% of your overall grade. And so I'll get you to choose your groups in just a little bit.
Today, we're just going to get to know each other a little bit for this first off, and then we'll go into some content a bit later. So today we're going to do introductions. What is strategy? What makes a great strategy? Thinking strategically, course assignments and evaluations. So I'll give you what you need to do well in this course in a little bit. You should have all of that in your syllabus anyway, but I'll just remind you of that.
But what I'd like you to do — I told you what I want from this class. What do you want? You've seen the course outline. What do you want to know or do at the end of this course that maybe you think you cannot do now or cannot do as well now? You don't need to share it with me. I'd just like you to make a note. And in fact, I think our course secretary, Jerry, should have sent you a link in the Line group, and it should be in your Sasinware as well — there's a Google Doc and you can answer the question there. What do you want to learn? What do you want to walk away with? So maybe you can take a moment and see if you can find the Google Doc and just complete just a couple of sentences for yourselves. Because what I'd like at the end of it is for you to look back on the course and see, did you achieve what you wanted to achieve?
Everyone find it? Okay. Or you can find it later. Just write it down somewhere else for now. Would anyone like to share what they would like to get out of this course?
"I want at the end of the course to be able to evaluate my current family business and then plan for the five and ten year future. Because we are in a very competitive market. We have a lot of competitors in our sector. My family business is that we produce ham bacon sauce in Thailand, German style. And there's a lot of competition. There's a lot of new players coming in. And one of our main competitors is like 10 times bigger than us. So I think for us it's either we get big or we get bought over. So it's quite difficult for us."
Perfect. In fact, your whole assignment will be about that. So you will have the opportunity to use all of this stuff to think about what your strategic plan is. Anyone else? Okay. I'll get you talking later.
All right. So raise your hand if you're in a startup right now. One, two, three, four, five. So less than 10%. How many of you are in a family business? Okay. About 50, 60% maybe. How many of you in a corporate? Okay. A good 40%. Nice. So it's about the usual mix.
Now, why do I ask you about this? The reason I ask you about this is because the challenges that you face will be similar in some ways and different in other ways. But the reality is if you're in a startup, you need to know that more than nine out of 10 startups fail. You probably know this already. And according to the latest data, startups take two to three times longer to validate their market. And founders tend to overestimate the value of their IP by 250%. So what you think you have is valuable may not be as valuable as you think it is. And often you need to pivot at least once to find the right market. So that's what strategy can help you do.
How about corporates? This chart shows the average age of companies on the S&P 500. By the way, slides — I know people ask about the slides. My approach is to share the slides with you at the end of the class. Because it's not going to be helpful for you to have them during class. If you've read the textbook, you'll be fine knowing all of this information. Everything else you will have after the class.
So it shows that in the 60s, the average age of a company large enough and successful enough to be on the S&P 500 was about 60 years. Today, the average age is about 12 years. So what does that tell us about business success? How do you think it's changed?
"I can guess that the companies — there's a trend in the world that changes pretty quickly. So a company comes and goes. Companies don't last as long as they used to."
Exactly right. That's not to say these companies don't exist, but they're no longer at the top of their industry anymore — these old companies. It's newer companies that maybe haven't even been around for a decade that are the biggest companies now. And if you look at the tech industry, it's pretty obvious where that's happening. I mean, you look at Facebook and Google and TikTok and all of those guys. Some of them are less than 10 years old. Google's been around since the late 80s, early 90s. Facebook, what, 2000s?
So the other thing to keep in mind is some of the biggest and oldest companies have disappeared. Pan Am was one of the biggest airlines in the world — done. AIG, one of the biggest insurers in the world. Arthur Andersen, top four consulting firm. I mean, they just changed their name to Accenture after they got caught cooking the books.
So what does this mean? It means that they were unable to identify an effective strategy for long-term success and to implement it properly. So they didn't last. And strategy always is about thinking about long-term. It's not purely thinking about tomorrow.
How about family businesses? Does anyone speak Spanish? No. Okay. "The father drives the mules. The son is a gentleman. The grandson, a beggar." Has anyone heard that saying before? In Asia, in China, they will say three generations — same thing, right? Three generations from poverty to poverty. Are you the generation? Are you the third generation? Any of you here? So think about how you make sure that that doesn't happen.
Because the data from some of the research shows that only 30% of family firms make it past the first generation. 13% past the second generation and 3% past the third. So a lot of pressure on some of you. And by the way, I am available even after this class, if you want to talk, come and talk about your strategy or your business. I'm around most of the time. So if you want to chat, you're welcome. I'm happy to help where I can.
So I wanted to highlight that because strategy is really about the long-term. Can anyone name some of the oldest companies in Thailand? B.Grimm. You know how old B.Grimm is? I think around 160 years old. Any others? SCB. Okay. We have people from SCB. Do you have anyone from KBank? I thought — yes, you're from KBank. KBank, SCB. No one from Bangkok Bank, correct? No. Okay. So some of the oldest companies — SCG, B.Grimm, 1878. Yeah, 160 years about, right? Impressive.
Now, what does this mean for us? I mean, how old are the companies that you work for? Anyone work for a company that's over a hundred years old? CP Group. 105th. Nice. Okay. So is this how old companies get? This sounds pretty old, right? Now that's one standard to look at, but there are 5,500 companies in the world over 200 years old. So how old do you think the oldest company is?
"Around a thousand years. Most of these are like Japanese ryokans. So there are Japanese hot spring hotels. They've been running those since the feudal ages, I think."
In fact, that's the oldest company in the world. Japan has a large percentage of some of the oldest companies in the world. There was a construction company that in the mid 2000s merged with another company. So it no longer exists, but by the time it closed down, it was 1,400 years old. One is 1,300 years old, 52nd generation currently running it of the same family. So doing something right.
So the question is, is that what you want? And how do you make sure that that happens? Because when we talk about long-term strategy, we're not talking about what do you invest in tomorrow. As a CEO, as a leader of a company, you are often making decisions which you will likely no longer be in the CEO role when those decisions actually bear fruit — 10, 20, 30 years hence. There's a saying in Africa about the old men who plant trees under whose shade they will never rest. Because by the time the tree has grown up, they're gone. So those are the types of decisions I would like you to be thinking about.
These are the books. This is your textbook — the only book you really need to read. I've suggested the Seven Powers, Hamilton Helmer's book. "Small Is Beautiful" is about the false belief that growth is the only measure of success in strategy. You don't have to constantly grow to do well. And then there are — I don't know if you have access probably through the library to HBR's library — there's some really good articles, including some of Michael Porter's stuff in the "10 Must Reads on Strategy," which you should be able to access through the library. But the only book you really need to read is "Crafting and Executing Strategy" because there's a lot of stuff in there with cases and things that I don't really cover.
Okay. So how we will learn. I want you guys to get to know each other because you'll be working together. Respect for each other — meaning when I get you to do group conversations and stuff, and when one group is presenting back, we all listen. We don't have multiple conversations. Because I think it helps to show respect for other people talking. So they show respect when you are talking.
Active participation — and you don't really need to raise your hand, switch on the mic and speak. I'm very happy with that. But if you feel more comfortable raising your hand, feel free.
80% attendance is a requirement by Chula. So in that context, you can really only miss one class. My policy for joining on Zoom officially is only with a medical certificate. However, I know that you guys are all working and sometimes need to travel and do this and that. So with the EMBAs, I am far more flexible. If you cannot be in class and you want to join via Zoom, just send me an email, send it to student experience as well, and always try and copy whatever emails you send to Jerry. She's the course secretary who's set up the Line group and everything. So that we can keep track. But I'm very happy if you cannot attend in person that you can attend via Zoom. But I hope you will all be able to join in.
AI — how many of you use AI to do your assignments? How many of you plan to use AI to do your assignments? Most of us, right? Why not? That's what it's there for. However, what I will say about AI — and the guys who do AI and digital will probably disagree with me — but AI, what it will give you is what already exists. And if you are going to use it — it's the same as using benchmarking of other companies to check where your company is. You can compare yourself to other companies. You can do what they're doing. All it will get you is to where they are. It will not get you further. In order to get further, you have to be creative.
So when you do your assignments, especially your individual assignment, what I'm looking for is yes, you need to do the analysis according to the criteria of PESTEL and so on and so forth. But what I want is for you to think as creatively and innovatively as possible for your company when you talk about its strategic recommendations. Now, innovatively but realistically — think about what might you do based on what you've learned and based on what you've read and based on what you know, that would help your company become the best in its industry and the most successful.
And in terms of AI, if I feel that there is a little too much AI intervention in your assignment, I reserve the right to call you in for an interview about your assignment and I'll be asking you questions. Okay. So this is not about your grammar or anything. And I'm not that concerned about grammar, to be honest. What I want is your ideas and your insight and your analysis.
And finally, learn by doing. Try these things out. That's why when you do your assignment, I asked you to do the pre-work because I want you to think about what are the challenges that you're facing in your business. And when you do your assignment, I strongly encourage you to do the company that you're working with or own or is part of your family, because that is where you can get more insight about the company because you're in the company, but also because you have some sort of ability to address and change. You will have more power to do something with the company that you work with than, you know, "Oh, I'm really interested in Ferrari. I'd like to do a strategy of Ferrari." There have been many of those done already. And Ferrari does their own. I want you guys to think about your company, even if it is a corporate, because you may have insights in your role that may not be present in what is currently happening and what the strategy of the organization is.
So that's how we'll learn. These are the weightings. Class participation is divided into two — five out of 10 is based on the Google Doc that you guys linked into. There will be a space every lecture for reflection. There are five questions that are asked in that spreadsheet. You just need to answer one of them very briefly. The reflection will be open for that day that we have the class. So by midnight, it'll close. So at the end of the class, take a couple of minutes, write something down. I just want to know what your thinking is.
So class participation 10 — five is for the Google Doc, five is how I feel you have contributed in this class. That's completely up to me based on asking questions, sharing information.
Your individual assignment counts for 30%. I expect you to put everything that you can think about and know into that assignment, because I spend time trying to understand what you are trying to say in that assignment for your company. And I base my grading of that assignment on the experience that I've had with strategy plus the 500 other assignments I've seen over the last few years to see where you fit.
Group assignment is a slide deck that you will need to hand in the day before the presentations, and then the presentation itself. Now, because I asked you — if you've read the syllabus — I asked you to do a strategic analysis and recommendations for Sasin as a place of learning. And I've only done this last year and this year. And I think it's a really great opportunity for you guys, because it's your first time here. You don't know much about the school, so go and find out a little bit about the school and figure out where we sit.
And we've had some significant news recently. We're now in the FT 100 of global business schools. In fact, executive education is also in that list, which is quite nice. And so you need to think about what can we do to position ourselves in the way that we want to, which is global impact but regional expertise, or something like that. So you need to look at what is our vision? What are we trying to achieve? And try and figure out how we can achieve it. Last time our director Ian came and sat in on those presentations. I'll see if I can get him in this time as well. Otherwise maybe one of the other deputy directors — because they're actually interested in knowing what you guys think.
The online quizzes — those are the Kahoot quizzes. Just your attendance will count for the grade. And then there is also another document — one page, 300 words roughly — your personal reflection. There are instructions for that that I'll give you in a bit as well. You will submit that at the same time as your final individual assignment. And I know you guys work really hard. So I think we finish on the 10th of July and I'm giving you an extra two days to complete your individual assignment and your personal reflection, because I know you'll probably be working on your group presentations before.
And there is actually only one class test — that's for the MBAs. The class test will be on, I think, lecture four. And it'll cover chapters one to four and whatever we do in the class.
Now this is your task: form your assignment groups. You have five minutes to form your assignment groups. There are two criteria. There are about 60 of you. So the group should be between six and seven people — preferably, definitely not more than seven, definitely not less than five. If there are people missing from this class and you want to add them in, feel free to do that. Make sure that your colleagues are in. And the second one is to ensure that your group is as diverse as possible. So looking around you and seeing everyone that's exactly the same as you and saying, "Oh, this is my group," is also fine — as long as you can justify how diverse you are. Okay. Five minutes to set up your groups and you will then need to put them into Sasinware. Make sure you take note of your groups.
[Group formation activity]
Okay. Wrap it up. So everyone has a group. Okay. By the end of the class or by the end of the day, please make sure you've uploaded that. So my next question is: as you were trying to set up your groups, what was your strategy?
"I just walk around and see who wants to join."
Exactly. Whoever's around. Get them to join — logistics. Did anyone have a plan? Next class I'm going to bring candy to get people to join you. Okay. So I didn't expect you to have a strategy for this, but my question would be: how would you make sure that your group is diverse?
"Also set up the group and then decide how it's diverse. From different country."
Okay. So you've got from different countries. How are you guys diverse?
"We have people from Taiwan. We have people from China. We have people from Myanmar. We have people from Thailand."
Okay. Wow. International. So these guys are nationally diverse. How are you guys diverse?
"We knew each other before. And that's why we find our diverse — different sectors."
Okay. All right. I can accept that. How are you guys diverse?
"Industry."
Okay. So the reason I ask you to make your groups diverse — whether it's nationality, gender, culture, industry, whatever — is that the research shows that diverse groups, especially at the leadership level in corporations, tend to be more successful because they can be more innovative. They have different ideas coming in and this affects their financial performance very positively.
This is just a LinkedIn survey, but there's a whole bunch of research that's been done on diversity that says — and it makes common sense, right? If you have different types of people, then you have different ideas and therefore you can choose better. You have a bigger pool to choose from. Now there are problems with diversity because sometimes certain types of diversity can cause conflict in a group and that reduces their effectiveness. So you have to manage it. You can do much more successfully with diverse teams.
Now that diversity does not have to be — in the US what diversity means may be very different from what it means here. It doesn't have to be about race or ethnicity or anything like that. Just different backgrounds, experiences, and therefore different ways of thinking.
Okay. So let's get to the topic at hand. What is strategy? Anyone want to try their luck?
"It is a set of choices that management make to do or not to do things."
Okay. So it's the choices that management makes about what to do and what not to do. Thank you, Tai. Anyone else?
"Michael Porter — you mentioned earlier strategy is choosing what not to do."
Okay. So the converse of that: choosing what to do and choosing what not to do. Lovely. Thank you. Who else?
"Strategy is to create superior long-term performance."
Someone's been reading the textbook. Excellent.
"I would say strategy is the thing that keeps employees in the company in the same direction."
So it's what keeps everybody moving in the same direction. Okay. Great. Anything else?
"Strategy is to sustain competitive advantage."
Sure. So all of you are right. And in fact, if you look at the work done on strategy, there are as many definitions as there are writers and books. "Strategy is about winning." "Strategy is a pattern in a stream of decisions." "A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge." "Strategy is a systematic plan designed to enable an organization to achieve its goals." "Strategy is a vehicle through which a business can review past performance and determine future actions to sustain superior performance." "The essence of strategy is choosing what not to do." And The Economist also said, "Nobody really knows what strategy is."
But we have enough of an idea that we can use it usefully. I'm not so concerned about the definition, but what I have done is I've identified three definitions that I think might be useful for us in terms of how we think about strategy.
The textbook is exactly as Tai was saying: a set of coordinated actions that managers take in order to outperform competitors and achieve superior profitability.
A.G. Lafley — does anyone know who A.G. Lafley is? He's a very well-known strategist, but what he's most well-known for is that he was the CEO of Procter & Gamble globally for about 30 years. So he has deep experience in the FMCG global conglomerate market. "Strategy is an integrated set of choices that appeals uniquely to specific customers, sustainable competitive advantage, reliable value creation."
And Hamilton Helmer in his book separates out the idea of strategy being the study of the determinants of potential business value. And the power is the set of conditions for creating the potential for persistent differential return. So basically what he's saying there is strategy is just how you study this stuff. But really what you're looking for is those powers. You want to create the type of conditions in your business that allow you to ensure persistent, positively differential returns from your competitors. You want to be able to do better than your competitors over the long term.
So what might be common between these definitions?
"Set of choices."
Yeah. It really is about choices. It's about the choices that you make in any situation. It's comparative. Your strategy is based on what is happening in your competitive environment with your competitors. And a monopoly — that's a form of economy in itself. But you're comparing it to other companies and other businesses. And you could be comparing just within your local markets. You could be comparing globally. But the reason it's comparative is because if I ask you, last year you did a 15% increase in revenue, and this year you did a 25% increase in revenue — is that good?
"Yes."
What else do you need to know to know if it's good?
"Benchmark."
Yes. Benchmark. So the question being, if other companies in your industry, competitors, made 30% revenue increase, then 25 is no good. So it has to be comparative.
Strategy sticks — durability over time. It is about the long term. And strategy links actions to outcomes, which is you can't just think about these things. You have to set — what are your guidelines? What are the outcomes that you are trying to achieve with strategy? And fundamentally it is about business value. And we'll talk a little bit about business value tomorrow when we talk about the value stick, but really it's about how do you create value in the world? If you are not creating value, then who's going to pay you for anything? And value can come in many, many different forms. It doesn't have to be purely financial, but in the end your value as a business is measured financially. If you cannot make enough money to keep going, then you don't keep going.
So these are the definitions I'd like you to think about as we go through this idea of all the choices that we have to make.
So if we have a good strategy, what makes a good strategy then? Here's some examples of companies. CP Group — who's in CP Group?
"CP Group strategy is kind of monopolistic in that we want to own as many stores as possible, both in terms of convenience stores and other stores. So I think CP has a 75% market share in retail and I think they can extrapolate further on the agricultural side."
"If I may view it differently — I won't talk about monopolistic, but I'm talking about integration, horizontal and vertical integration. I think what we're trying to do is to capture as much value, but not just capture for ourselves, but give it back to the market, to as many consumers — high quality products. And sometimes that needs scale, that needs expansion, that needs to secure supply from reliable sources and ensure that the value is not lost in between."
All right. So integration is one strategy of the group. That's the newspaper news-ready answer. Very good. Yes. So its strategy is to try and integrate into the full supply chain, which is a very good strategy. Monopolistic or not, that's a different story. But if an economy allows an organization to become monopolistic, then it's not necessarily a bad thing that a company is trying. It's just the way it is. If the opportunity is there, companies will try. Whether it's good or bad is a different discussion.
Starbucks has a very similar approach to CP Group in terms of its expansion. It will open up coffee shops on every single corner of an intersection to push out the local coffee shops. And once those are gone, they will cannibalize each other, just like the 7-Elevens do. If someone wants to open up a 7-Eleven next door to another one, you'll let them, I'm sure. As CP Group, you see who survives because for you, it doesn't really matter which one survives — you're getting revenue from both or a single one within that market.
Netflix has a very interesting strategy in terms of how it has managed to survive multiple iterations of the media economy. And it has thought about this. When it first started out, it was DVDs by mail. What was the defining differentiator for Netflix apart from delivery by mail? What is it that helped them beat Blockbuster?
"Late fees."
Blockbuster's biggest revenue generator was late fees, because people would always rent for three days and then bring it in late. And they ended up paying a couple of dollars. Netflix says no late fees. Keep it as long as you want. As long as you're paying us the subscription, keep it as long as you want. And that really broke the business model that Blockbuster was working on because if you don't have to pay late fees, why would you? So then I'm happy to get it by mail or whatever. I don't need to go into a store.
So different companies have different approaches, but what you want is something that will address the environment that you're in and beat your competitors. And there are different ways that companies can do that.
So you need a long-term orientation. You look at Berkshire Hathaway. If you look at its growth in relation to, say, the New York Stock Exchange over a period of 50 years — the Dow. If you look at the Dow, the Dow would have increased probably about four or five thousand percent over 50 years. Berkshire Hathaway's value increased by four times that in the same time period. Four times that. And that was purely because they had a very clear strategy for which companies to buy and how to engage with those companies and manage those companies when they did go in.
And I'm sure you've heard Warren Buffett talk about — he doesn't buy anything that he doesn't use himself. So he buys Coca-Cola, he buys Apple. But he was very reticent to buy AI companies because he didn't see where the value was coming. And let's be real. How many of you are in the tech industry? Can you see what it will take for AI to become a profitable industry? I mean, it hasn't made a cent yet, right? Well, let me ask you — do you think AI will give investors the returns for the money that they have put in over the last 10 years, which is trillions of dollars?
"Some of them can, but not everyone."
Okay. I mean, it's honestly for me, AI and the AI investment context seems like a pyramid scheme. It really does. People are pouring money into it, cutting out jobs and integrating AI, but it has not shown value. Really. It has not shown in any large company clear profitability targets.
"Do you think AI will become like the internet? Because at the beginning of the internet, they had different use cases and development and finally they are everywhere. Do you think the same thing will happen with AI as well?"
So I think first of all, AI as a concept is very overblown. Nothing that we have is artificial intelligence. It's machine learning, it's large language models, it's algorithms, it's all of those things. It's not intelligence. Yes, it can do stuff much faster than us in some ways. It's been used to diagnose certain things quicker than doctors and so on. But then again, trained dogs can diagnose cancer in patients better than doctors. So I'm not sure — I think it'll be far more disappointing than the internet. I'll be honest with you. But for what we use it for now, I think it's fine. But I don't think it provides us with the productivity that it promises because let's face it, yes, I can write a report in 10 minutes. But do I understand what that report says? It still takes me time to try and understand what that report says, and to understand if AI is actually right in what it's written. I pay for Claude, I pay for ChatGPT and I use them and I explore them and I compare them. And even when I ask for verified sources, it still gets things wrong. But the only reason I can tell is because I know what the answer should be. Imagine if you're a person that doesn't know what the answer should be and is depending on AI for your answers. And that's the bulk of people in industry — they go to AI because they don't have the answers. But if you don't have the answers, you cannot tell if AI is going to be good or not.
So I think, yes, it may become ubiquitous. I think you're probably right. It'll become like the internet embedded in everything. And I think there is an arms race in terms of AI and quantum computing and so on, because as people use it for criminal activities, then the governments and companies are going to have to fight with cybersecurity, all of that stuff. And if you don't have AI, you won't be able to compete against the people that are trying to break in. So yes, it does have its role.
"This morning I heard some news — just would like to clarify if that's the truth or not — because they say that, for example, the investors who invest, let's say, 10 billion into OpenAI, and then OpenAI buys the service from Oracle for their calculation or something. And then Oracle goes to buy the chips from Nvidia. So the same money — it's from this street. Actually, there's no creating any profits."
And look, I mean, OpenAI — if it ever lists and goes public — it'll probably hit half a trillion dollars very soon. And yeah, SpaceX has just gone public, right? That's another show. Elon Musk is very good at playing shell games with companies. But if it lists and it's worth a trillion dollars, like Nvidia is now, when will it show the value for that? Because to be honest with you, yes, some people say, "Oh, we've got to wait, long-term strategy, 10 years, 20 years," but the market is not willing to wait. So someone is going to be left holding the bag for those shares. And I can tell you it's not the hedge funds. It's not the major investors. It's the pension funds that we all belong to and our taxes that will be paying for that. That's what I think. But maybe I'm a pessimist.
"Let me add on this one because I'm working on a tech company. And so they're part of the AI part as well. But I do personally believe that it is a cheat as well. Actually, what we just said is that it's true because even Nvidia — that is the big company — the company called CoreWeave, before they invest a lot in computing processing power — because all of the AI actually just relies on that. So CoreWeave actually used to be a blockchain company, trying to just salvage the blockchain things. But now they turn into the AI company. They just buy the chip from Nvidia and then Nvidia just buys the computing power back from CoreWeave as well. That's what you said about circular economy. That is what happened as well. So the AI industry right now is what is holding the US market share. And also the S&P 500 is still skyrocketing because of these imaginary figures."
So I don't know if that answers your question, but yeah, I'm a bit pessimistic. I'll be honest with you.
But what is success? You have to be adaptive. If you think about Tencent as a company — you know what Tencent's main business is? Most revenue generating — WeChat and... gaming. Gaming is their biggest revenue generator. Huge. But I'll show you a little visual of Tencent in a moment. They do everything, but the big chunk of it is in gaming. And gaming is a bigger industry by revenue than movies, TV, and music put together. It's huge. In fact, there's a company in Thailand that started out as a gaming company and is now a huge e-commerce company. Does anyone know who that is? Shopee. Shopee started by Garena, which is a gaming company. And they tried to figure out — they created tokens for exchange within their gaming economy. And then they thought, "Well, we've got this system. Maybe we should use it to make some real money." And they've pivoted really well on that.
Value chain alignment — Nike. You need to know what you're doing from the time of design to the time of sale. You have to have a single narrative and a very clear story for your value chain. And the more control you have over your value chain, the better. Now, Nike is not as good as some other companies. Probably one of the best companies for value chain alignment is Zara. And we'll talk about Zara later on in the class. They manage their whole supply chain, which gives them huge advantages over other fast fashion companies like H&M because they don't need to order their clothes six months in advance from Bangladesh. They can order it two weeks in advance and it'll be ready, because they have their own seamstresses, their own factories, everything that they need.
Market responsiveness. You think about Central Group. Pink, you work for Central Group, right? What do you think about their strategy? How much do you know about their strategy?
"Because I work for CPN. So I think like the whole group, I get the biggest picture. Because we are a retail focus, trying to control the demand and integrate it with different uses is the big thing that we're doing right now. We're doing hotels — apart from Centara, we're doing residential, doing offices. And by doing that, it just makes the retail demand stronger. So for CPN, it will be that. But for Central Group, I think I can talk about CPN that relates to Central Group."
Is it focused on the development of the malls or the management of the malls?
"It's development. It's real estate development."
Yeah. I mean, for me, Central Group — what was most interesting about Central Group? I think CP Group as a whole is focusing on creating ecosystems of community malls as well as their high-end malls, as well as all sorts of things. And in fact, there's someone else who works at CP from last year's group, Kate, who probably you can talk to and get some insight from.
But for me, the most interesting thing about Central Group was this idea that when they realized that they had saturated the high-end luxury department store market in Thailand and they had a lot of cash, they decided to expand and they didn't just expand in the region. They went off to Europe and they bought the most well-known department store brands in Rome, in Copenhagen, in Zurich, in all of these places. And most of those people in those countries don't even know that these businesses are owned by a Thai company, because they manage them from a financial perspective in the same way as CP Group, but in terms of marketing and retail, they allow them to do their own thing because they're successful anyway. So they have a very responsive strategy. They don't try and rubber stamp every retail piece to be the same. They're happy to let it be different.
And that ecosystem management — you know, for Apple, once you buy an Apple, you can barely get out of it. I mean, I have an iPad and an iPhone and a MacBook and this and that. My Christmas present to myself in December was 48 terabytes of storage space at home. It costs about 50% more now than it did when I bought it in December because of AI.
Look at Tencent's digital ecosystem. Gaming, videos, work, health, reading, payments, listening, chatting — everything in a single system. So actually, if you live in China, you never need to leave your house or ever leave Tencent's environment. You can do everything you want in there. It can be your life. Imagine how powerful that makes them in the lives of their customers. And imagine how much data they are getting from their customers that they can use for other parts of their business.
You look at Apple — what makes this a great strategy? What makes Apple's strategy really great? It goes up in the numbers. So Apple's in the black — 14% market share for smartphones. That's a big chunk for one company. But I mean, Samsung is even bigger. Xiaomi, which isn't even a quarter as old as Apple, is at 11%. So okay, but not great. Revenue share: 42%. That's a big difference. Operating profit share: 80%. That's a strategy. They sell the same thing as Samsung and Vivo, but their business model has allowed them to create multiple times profitability than their competitors, which means they have about 500 billion in cash just sitting around, which they can use to buy any technology they want, any new upcoming company or whatever it is. And it's a crazy thing when you compare across those three charts.
So in the book, it'll tell you that these are the things you need to look at for a strategy. You need to know how to strengthen your position with suppliers, etc. You need to know how to design your product better and provide quality. You need to be able to gain market share or increase profitability via lower costs. You need to know which markets you're going to go into. You need to know, are there any emerging markets? Are there any external threats? We'll cover all of these in bits and pieces as we go through. You need to look at your CSR and corporate reputation. You need to look at your corporate culture and your employment culture. You need to look at your competitive strength in terms of alliances and joint ventures and so on. Are you doing R&D? How are you doing your functional skills — your HR, your sales, your production, etc.? How safe are you in acquiring the resources that you need to produce your stuff? So if you are producing EV batteries for cars, how much access do you have to the child slaves in the Congo that dig it out of the ground? You've got to think about how close you are to different parts of the value chain. You'll find me quite sarcastic when it comes to profitability in some instances.
All right. So when strategy goes wrong — you all know what happened to BlackBerry, by the way. Disappeared. Why? I mean, it had 20% market share of smartphones. And what, six years later, it was gone. What happened?
"I remember watching the movie. But I think the CEO was pretty fixated on the keyboard that kind of made them out of date and people no longer favored the brand."
Yeah. And it was a great product for its time. And this is the thing that we need to think about, because when we look back, we think, "Oh, how stupid were they? Why didn't they just move to touch key?" But there are reasons. At the time when they were thinking about, should we move away from keyboards or not? — for them, that was a key factor that differentiated them. To move away from it would mean changing who they were. So it's a difficult choice to make.
But it wasn't just the keyboard, because one of the things that kept them very strongly in business, especially with financial companies and so on, was the security of their system. And because they owned all their servers, nobody else could access it. It was a fully locked-in system. So very safe for company data and all sorts of stuff, emails and so on.
The problem was in about 2006, 2007, when Apple came out, they had several problems with their server system. I remember I was working in London at the time, and I think the system collapsed for several hours over two periods in a month, which obviously starts making people nervous because if what you rely on the company for is reliability and safety and security, and suddenly you can't use it, then there's a problem.
And also because their ecosystem was locked, they didn't — unlike Apple — allow anyone else into that ecosystem to create apps or services or whatever. It was all them. And if you look at the difference between open source or publicly accessible content creation or technical creation and closed corporate technical creation, the open source will always do better. I mean, if you think about corporate servers, what do they use? Yes, some of them use Microsoft, but the bulk of them use Linux, which is open source.
There was a time in the early 2000s when Microsoft spent millions and millions of dollars trying to create a digital encyclopedia. Does anyone remember the name of that encyclopedia? It was called Encarta. They hired hundreds of people, researchers and everything, to produce Encarta, which they then planned to sell as discs and where you could access online. What happened? Wikipedia — free. People contributed their own personal time for free to fill this up. And it is as accurate as any privately held one, and Encarta died. Couldn't compete.
Before we go onto these two companies, should we take our break? Because I know you have dinner waiting for you. Okay. So half an hour and we're back here and we'll talk a little bit more about what makes a great strategy. Does anyone have any questions at this point before we take a break? Are you okay with the speed we're going? Okay, great. I'll see you on the fifth floor.
[Break]
Okay. Hey ladies and gentlemen, let's get started. It's a Friday night, it's late. I'd like to let you go home on time. So we were talking about what makes a great strategy. And as you can see with BlackBerry, the strategy went wrong for multiple reasons. And you can, if you look back at companies, you look back and you think, "Oh, they made these huge mistakes." Often one of the first companies that people talk about is this one. You're all familiar with the disaster that Kodak encountered. I mean, it was at one point in the sixties and seventies — it had 90% of the film market in the US and 85% globally. So you could be almost a monopoly and still die. Yes, it took them a while.
But so who can tell me what happened? Why did Kodak go bankrupt in 2012?
"They didn't jump on the digital camera train."
Okay. Now it's an interesting way to put it — because they started the train. They didn't need to jump on the train. They invented the digital camera. Kodak invented the digital camera. It invented the megapixel sensor, which you need for high-quality photographs. And yet it didn't use the train to go anywhere. Now these people, they're not stupid people. They're educated. They've probably got their MBAs from Harvard. And they're at the top of this company that's at the top of its industry. Why do you think they decided to not go digital in the seventies and eighties when they already invented it? And only in 2000 and something, they introduced the EasyShare camera. Why do you think that was?
"They did invent the digital camera, but they didn't switch to digital storage. They had to keep selling their films."
Right. Yeah. So their money came from film.
"They were fearing cannibalization. Well, if we start selling digital cameras, then nobody's going to want to buy photographs and buy the paper. And that's our biggest margin product. So we'll lose it."
Yeah. That's what people think.
"They didn't realize the impact of smartphones coming at that moment, I think."
Okay. This was way before smartphones started having good cameras. There's way before that. But put yourself in the shoes of an executive around the mid to late eighties. So you've invented the digital camera. You're still selling huge amounts of film and photography paper and cameras — normal film cameras. And so these guys suddenly come to you, your research team, and say, "Look, we've invented the digital camera. You can take photographs in digital form. You do not need to print it on paper." Amazing. What do you do? What would you say to them?
"They still believed in film so much that they wouldn't want to adopt something new."
Okay. So yeah, this is what you always hear. And completely right. If I am a manager, if I'm a senior manager at Kodak, I have, let's say, $100 million to allocate to the various business units. Now R&D doesn't really make any money. And they come up with this thing and they say, "Oh, we need some money to make this work." Photography paper, film paper is making $50 million a year profit, and like 20% margin, and all the biggest customers are with that department. And now you have to allocate in your board meeting and you have to allocate funds. What are you going to do? Are you going to say, "Okay, I'm taking money away from our most profitable business to give to this thing that I have no idea whether it will make money or not"? It's not an easy decision to make.
I mean, in hindsight, oh, they should have, sure. But at that time, try and picture this, because I think people don't really understand what was happening then that pushed them to make this decision. It's not the right decision. They made the wrong decision for their long-term success, but there were reasons why they made that decision.
Think about this. I come to you with a digital camera. This is the mid-80s. Where do I see my digital picture? I would still have to go and get it printed. But I look at it on a computer. Do you know what the computers in those days were like at home? You remember what it looks like — green dots on a black background. The quality of screens wasn't that great. So I, as an executive, will say, "Really? Look, that doesn't look like a photograph. That's awful." And who in the family is going to get grandpa and grandma to come and sit in front of the computer to look at pictures? So rationally, it made sense if you look backwards. If you don't have the vision to think this will happen...
Netflix saw that. So when Netflix moved into streaming — and we'll talk a little bit about that tomorrow — Netflix moved into streaming. Nobody else was doing it. Why? Because there wasn't enough bandwidth, but Netflix saw with the growth of bandwidth over time, that very soon they would be able to send movies online. So that's why they invested in it. Nobody else did. Once they started being successful, then Disney says, "Oh, we can do it." Paramount says, "Oh, we can do it." Everybody can do it. But Netflix was the first because they saw the potential of broadband. And we'll talk about that tomorrow when we look at what might happen in the future.
So this is what happened. And in 2012, Kodak filed for bankruptcy. Poor strategy, which was a focus on photography film and paper. But if you're interested in how this happens — and it happens more often than you think — you should read the book by Clayton Christensen about disruptive innovation. He was a professor at Harvard. He's the one who came up with the term "disruptive innovation." The book is called "The Innovator's Dilemma." And in two cases that took over 40 years of two different industries, including the computer storage industry, he showed that every time there is a significant shift in technology in an industry, the biggest players die and new players come up.
Because the biggest players will always focus on the strong end of what is traditional because that's where their margins are. That's where their profits are. So it's only the small companies that are willing to be nimble enough to actually change and do something completely different. And by the time the big companies come into the game, the small companies have already become big because they took over that market.
But that's just one aspect. And everybody says, "Oh, America is so innovative. The West thinks so creatively." But there is an example of a company in exactly the same situation and in exactly the same industry that instead of going bankrupt like Kodak — in the year 2012 that Kodak filed for bankruptcy, they declared something like 20 billion plus in profits. And they started in the same place. They had 60% of the film market in Asia. Fujifilm.
So does anyone know the story of Fujifilm?
Here's a little video about Fujifilm.
[Video plays: "There's a rather striking realization that the same chemical, same processes that help prevent fading of colors in photography also apply to skin and help prevent skin from sagging and fading."]
Okay. So thoughts. Who would like to share anything interesting that came out of their conversations? This is the contribution part.
"I think one needs creativity."
Creativity. Yeah. So now it's interesting when we talk about creativity. Do you think there is a difference between creativity and innovation? What would you say the difference is?
"I feel innovations come from creativity, but it happens because of technology. But creativity, it happens in your brain. Or it comes from your idea, then you invent it to make it happen."
Okay. All right. Rin, you wanted to say something?
"I think creativity is the ability to create new ideas. But innovation is when you use those different ideas to serve some purpose. For example, it serves a function."
It serves a function rather than to serve art.
"Yes."
Okay. All right. That makes sense.
"Innovation is a thing that improves what you need. But creativity is a thing that you don't know that you need."
Okay. That's possible. Generally, I think the definition is quite close to what Rin was talking about, which is creativity is coming up with these ideas and these ways of doing things. Innovation is about translating that into a tangible, profitable approach to something, I would say. Thank you. Jack?
"I think after seeing the video, I think it's the imagination. Because Kodak is seeing themselves as a camera company. And what's different will be — Fujifilm jumped out of the boundary. They're not only in the camera business. So the chemical can do anything. So I think it's they lose the imagination, then it will cause the creativity to go away."
That's a great point. It's about perspective. Kodak saw itself as a film company. Fujifilm saw itself as a chemical company. If you see yourself as a chemical company, there are many other things you can do with chemicals. Whereas if you see yourself as a film company, what else can you do with film? So it really was a matter of perspective about where they started in terms of how they see themselves. So great point.
Okay. So let's talk about how you think strategically. This is the first model I'm going to introduce to you. And this one will be very useful, hopefully. This is the Hambrick and Frederickson strategy diamond. And it's nice because it gives you a very simple way to understand — if we say strategy is about choices, these are the choices that you need to make.
ARENAS: Where will you play? That means what products are you going to do? Which part of the value chain are you going to own? Which geographies are you going to be in? Are you only going to be in Thailand? Are you going to be in Southeast Asia? Are you going to be global? What distribution channels? Are you going to have brick and mortar stores? Are you going to be in a shopping mall? Are you going to be online e-commerce only? In which channel? In which part of the supply chain? Which technology? Which market segment? So for example, I could make handbags, but I need to choose. Am I making cheap handbags to sell at Walmart? Or am I making luxury handbags that look cheap to sell for $2,000 in a Louis Vuitton store? Or who's the company that recently made a bag that they copied off IKEA? Balenciaga or someone. I can't remember who it was. So arenas is about where you play.
STAGING: When. So how quickly will you expand? When will you do your initiatives? How are you going to stage? What steps are you going to do? Staging also involves when you are going to change your business. So for example, Kodak could have moved to digital, but it staged it way too late. So when we talk about competitiveness later on in the course, we'll talk about first movers, fast followers, and so on. That's also part of your staging. Are you the first one in the industry doing something? Or do you wait to see if it's going to be good and not invest so much? And there are a lot of things that you need to think about when you stage as well. I mean, how often do you release new products or new updates? I mean, let's face it. I was talking to someone today about the fact that with the iPhone, you don't need to buy a new iPhone every year, even though they release a new one. You could just have one from four years ago, and it works almost exactly the same. Why do you need to update it?
VEHICLES: About the broad methodology of how you're going to do it. This is about how will we get there? If we're creating an app or a service, for example, are we going to do it internally? Are we going to hire all the engineers and develop it internally? Are we going to outsource it? Are we going to have a joint venture? Are we going to license some technology? Or are we going to have technology that we license out? Do we make alliances? Do we acquire companies? I mean, if you look at all the big tech companies — Facebook, Amazon, Apple, Netflix, Alphabet — those big companies, what they do is they have cash. They can invest in buying companies whose technology interests them. They don't have to invent it themselves. They can just buy it because they have so much cash on hand. And in fact, sometimes they can buy companies just to shut them down because they don't want the competition.
If you look at Facebook, when it bought Instagram, there was a congressional hearing that Mark Zuckerberg went to, and all his emails between him and his lawyer came out. And although they never said it out loud, you could see in the narrative that they wanted Instagram because they thought that Instagram would be too much competition for them if it really grew. So rather buy it and either shut it down or integrate it. Same with WhatsApp. They bought WhatsApp — why? Because they had Messenger, but nobody uses Messenger, it was rubbish. So then they bought the app that was the competition, and now they own that as well. So acquisitions are also another way to go — mergers and acquisitions — but they can be quite dangerous.
DIFFERENTIATORS: How will we win? Meaning how are we different from our competitors? How clear are each of you on how your company is different from its competitors? I mean, let's ask the banks. KBank, SCB over here. So how is KBank different from the other 10 banks in Thailand?
"We are focusing on the digital transformation and trying to create an ecosystem, including sustainability solutions."
So are you going to tell me that SCB doesn't do that? That's the difference. Yeah, that's it. From a customer point of view, very difficult to differentiate, unless you're in some of those very specific areas where KBank is good at certain parts. Like some banks are very good at the lower end of the market. Some banks are good at wealth management. But generally it's very difficult. Can you tell how your company can differentiate itself? You have to know. Is it because you have better quality? Is it just your image? Is it price? Do you sell cheaper than everyone else? Is your product more reliable? Do you customize it? Or are you one of the first people on the market? So you're the first ones that people think of when they buy it. Sometimes you don't have to be the best. You just have to be the first. But sometimes if you're the first and not that great, then the guys who come next and do better will take over from you. Sometimes if you're there first, your name becomes synonymous with the product like Kleenex. Like people use Kleenex to refer to tissue paper — it's only one brand. And in the UK, vacuuming is not called vacuuming, it's called hoovering, because it becomes part of the language.
ECONOMIC LOGIC: In the end, everything boils down to how will you make money? Your economic logic. How are you going to make money? Do you have scale advantages? Can you replicate? Do you have premium prices because of your amazing service or your brand? Do you have proprietary product features? What do you have?
I mean, if we look at the smartphone companies today, what differentiates Vivo from OPPO? What differentiates them from a Samsung phone? All the same apps are available. What differentiates them from Apple? So people will buy Apple because of the ecosystem, and everything seems to work quite smoothly within that ecosystem. So it makes it easier if you're doing other stuff, but fundamentally as a phone, is there any real difference? I mean, some — I think OPPO is the one that focuses on lens quality. But then now Vivo has got a deal with Leica to create their lenses. One thing I discovered that freaked me out was when my wife got her latest Samsung, I looked so much better in those photographs until I realized that actually the beautify mode is set at high already as default. You have to switch it off if you want to look normal. I looked like I had 10 years of work done. That was crazy.
So these are the five sets of questions that you need to ask yourself when you are setting strategy: Where are we going to play? How will we get there? What will our speed and sequence be? How will we differentiate ourselves? And fundamentally, how do we make money?
So how do businesses make money? How does McDonald's make money?
"Selling food."
"We are not technically in the food business. We're in the real estate business. The only reason we sell 15-cent hamburgers is because they are the greatest producer of revenue from which our tenants can pay us our rent." McDonald's is around the third largest landowner in the world because they own most of their locations. And basically what they do is: you pay us a million dollars and we will allow you to set up one of our shops and we will supply you with everything. All you have to do is keep paying us our fee every month. Good deal on both sides, but they make their money from the returns from their franchise holders. They don't sell burgers. The burgers are just the tool that they use to get their tenants to give them revenue.
So how does Toyota make money? Well, now it feels like a trick question. Actually, they sell cars. Good guess though. They make 10% of their money from financing, actually. They don't make a lot of money from their servicing unless they're out of warranty, but they make a lot — 10% is not a small amount. It's from financing because they realize that actually, if the banks and loan companies are making so much money, why can't they? So they finance their own cars and they make quite a bit of cash.
How do cinemas make money? Popcorn and drinks and stuff. Right now, 788% profit on it, right?