'Social progress' index and it's an attempt to measure societal improvement with the same rigor and to

reflect on how we've focused on economic improvement.

So let's start with that and talk about what I think is my core theme and what I think really remains one
of the areas that ultimately have the biggest impact on a company's success, and that's a clear strategy i
think what we have learned is that the instinct that what most leaders have in terms of success, and
what most people actually have in terms of success, is dangerous and potentially distracting.

What I find is that if you ask a company what success looks like, the answer I get is a lot, “Fine . I want to
be the best company in my industry. I want to be the best bank. I want to be the best car company I
want to be the best consumer goods company in this category I want to be the best company that
succeeds If I can be the best company in my industry, I will succeed and that's a very natural human
mindset , we all hope for the best in what we do, but in business competition, and we've learned that's
not actually the way to think about success.

The reason is that there is no one best company so it is quite dangerous to do something that is
impossible no best car there is no best insurance company it all depends there is no better there is not
one way to compete.

The biggest strategy mistake is believing that there is only one way to compete in any industry there are
different ways to compete depending on which customers and what customer needs you are actually
trying to fulfill. So if you're asking yourself the question what is the best car or car company, you can't
answer that because to be the best it all depends on who you want to serve when you're trying to young
families to serve the best is a different thing, and when you're trying to serve people like me, to serve
people who want to know that luxury and excellence are the best, that's a very different thing than a
very, offering very low cost efficiencies, you know electric vehicle There is no best way to compete.

There are many good ways to compete depending on who you want to serve, so the main strategy is not
to think like that, but to think about how can I be unique in my business, how can I bring unique value to
the customers I want to serve? strategy is essentially about choices, it's about a set of choices, and the
most basic choice is who i want to serve, and one of the worst mistakes in strategy is trying to serve
everyone. You can't serve everyone's needs Meeting customers You just can't do it It's impossible I've
seen hundreds of companies trying It's impossible You can't meet every customer's every need from the
ground up If you have a strategy, have it set aside which customers' needs you will actually see for me
what you can possibly do once you are clear about where you are heading, another huge mistake in
strategy you are competing with your competitors on the same thing when your competitor is trying to
to get the lowest cost, it's quite unusual to win if you then try to chase them and be low cost.

The essence of the strategy is to find a unique position in your company that delivers unique value to
the customers you choose to serve. inability to make choices resulting to lack of success. sounds simple
but most companies don't succeed now again in a country like India, where the growth has been
relatively rapid, you can rot, you can ride the rising tide and do well, but what I'm talking about today is
that the companies are going to be really successful, really successful, not the ones that just bump along
with the market do we really need a strategy to be really successful and that strategy isn't just about
being the best now you know the word strategy is used a lot and I've always tried to make companies
that I work together and to help people I work with to have a clear understanding of what we mean by
strategy.

This is about strategy, a set of decisions we make to differentiate ourselves from the competition over
the long term and it also really articulates the competitive advantages we will create and use to succeed.
So, at a very high level, I would define strategy like this again. Note that the word long-term strategy
refers to a long-term view that doesn't matter Tomorrow and the day after tomorrow is about the long-
term because it takes a long time to develop and implement strategies to differentiate yourself. When
you're doing the same thing as your competitor you don't have a strategy you're trying to do the same
thing better, that's what we call operational excellence, we're going to talk about that in a moment,
strategy is about choices, what choices you make versus the decisions your competitors are making. this
is not a strategy trying to grow faster is not a strategy how you these are goals these are aspirations
strategy is the unique position that enables you to achieve any goal you have set we must not confuse
strategy and goal we must not mix it the goal we have want to achieve, and then the strategy is how we
get there.

Strategy isn't just one thing That's not a strategy you know Raising your knees isn't a strategy Strategy is
holistic It's the whole set ofchoices you make collectively to successfully position the company in the
market over time It is not just not a step, but a set of steps. The strategy includes all the functions,
marketing, production, finance, all together to create that unique positioning, that's what strategy is
about, and strategy is not vague, it's not a mission , it's very specific as we'll see so let's start with a here
somehow we all need to anchor ourselves in a clear idea of what we actually mean by a strategy and
when we start with that we can start doing the analysis to carry out and make the necessary decisions to
get there, as many of you are doing now public companies and here we have a one wide res problem
that many companies are confused about and that is when you are a public company we have a stock
price and we know that everyone pays attention to the stock price and what we also need to understand
when setting a good strategy actually the stock price is not the goal the stock price is an outcome the
goal is superior economic performance. The strategy is about creating superior economic performance
in terms of return on capital and growth - not on a year but on a sustain basis. Okay, and what we do
know is that it's economic performance that really creates value.

PriIce can rise or fall depending on what's happening in the world. That doesn't mean that the value has
changed, the value is actually created by the economic performance earn a good return on investment
and grow the business well we have to remember that when setting a strategy we have to focus on the
economic performance part, that we can't try to please the stock market, that we can't try If you know
what investors want today, it's going to confuse us, it's going to pull us away from our goal. I think you
know that for strategy, especially in public companies, the idea that actual performance determines
shareholder value and not the other way around is crucial.

You'll be surprised that sounds awfully simple, but I don't work with hundreds of CEOs of public
companies together, and they're all confused as to who what what is on the scorecard here, and the
stock market is kind of a long-term work that works pretty well Scorecard If you have good economic
performance, your stock price goes up, but in the short term stock price is a lousy way of measuring
success, markets can be far from it, we find that in the studies on this question, so this is all about long
term sustainable economic performance and we have the guts to use stock price for let it take care of
itself and not try to go crazy trying to please the analyst to face or deal with any criticism that we might
throw at you k Now in the stock market, now that we're thinking about strategy again, is another key
principle, and then we're going to dig a little deeper, that strategy occurs at multiple levels in many
companies

In many businesses, not every business is the core level strategy, what we call business strategy, this is
how you compete in each or the particular business you are in. So if you're in passenger cars, you have a
passenger car strategy, which is business strategy, but in a lot of companies there's another level of
strategy, which is what we call corporate strategy, and that has to do with the overall strategy of the
diversified or multi - Business company to do. We have many conglomerates. I don't like the word
conglomerate. Conglomerate is not a strategy but we have many companies As it is more than one
business we must have a strategy for each individual business as it is a different market that competes in
different ways to serve different customers , but we also have to think up the overall strategy of the
diversified group, and that's a whole different animal, and there's a new set of principles or a different
set of principles to think about that.

I find a lot of confusion, many companies mix this corporate and business get mixed up, that's a mistake,
we have to keep these levels separate and we'll talk about that briefly because we have time now, let's
talk about the business unit strategy and I'm going to go real quick because again I'm hoping that most
of you are fairly familiar with the key ideas here so that we understand that in a business, a particular
business has the drivers of success and the key elements of the strategy have to do with the industry
itself, the business itself and the position We choose to occupy in the business. this business strategy.

Both together is fine. What we understand is that industries differ in terms of the type of competition
and we need to understand our industry we need to understand d how the competition is evolving,
where is the journey going, in what direction and with what type of competitive dynamics we have to
grapple, we have to understand business by business, and then of course we have to make the decisions
about where we're going to compete, but one of the things I keep finding is that the health of your
industry is often the same important is like your good position, if you are in an industry that is in trouble,
which is family, you may have a great position, but that is not very valuable, so we have to learn to care
about our industry as well.

We need to help our industry thrive and not just go back to just focusing on our own position. These are
things that we have learned in terms of many, many, many examples of industry analysis that hopefully
everyone is familiar with, you know that after 20 or 25 years of work we have overwhelming evidence
that competition in the industry really is driven by these competitive forces that we introduced many
years ago Competitive forces collectively drive the fundamental attractiveness of the industry, the
average profitability of the industry, and yes, here is a simple example in the heavy truck industry and in
our country a very difficult industry.

If you look at this industry, you see many competitive forces that are challenging We have vicious vicious
price competition among truck manufacturers. We have some high regulatory standards that drive up
their costs to meet those standards but it is very difficult to pass those costs on to the customer as the
customer is consolidating into large or larger fleets and leasing companies that have a lot of bargaining
power have to push the price down, so the combination of rising regulatory costs and a powerful
customer is putting pressure on truck manufacturers. We see that you make some of the parts to make
heavy trucks, some companies do more, some companies do less, but you also have to source things like
engines and drivetrains components, axles and things like that, and a lot of the suppliers of those
components that you buy have very strong brands and actually the trucking company specifies the
brand of the parts they want for the truck now they want a cummins engine for example they buy for
some suppliers so they have a lot of influence because they have their own relationship to the end
customer, so that the truck companies are pushing the truck manufacturers into the middle.

This is primarily in North America but the same basic structure exists in many other parts of the world
It's actually not that hard to enter into the industry The threat of entry and barriers to entry are an
integral part of industry analysis and you know it's actually harder is getting the dealer network than it is
to actually getting the parts and assembling the truck and of course trucks always compete with
substitutes but hopefully we all understand what the substitute is a different way of meeting the need
that is not the same with your product that fills the same need as your product does. the railroad or if
they're going to use water transportation so you especially know railroad reverends have been a really
tough competitor to trucks over the years okay so this is a classic example of industry analysis , it's
something that's always timeless every time you think about the strategy after.

You need to understand your industry systematically and thoroughly. What are the competitive drivers
and how are they changing? Are they getting worse than better? Where does the new competitive force
you have to deal with come from? If you want to win in that particular industry, you know, here's
another example of an industry industrial gases this industry makes oxygen hydrogen argon all these
industrial gases that are increasingly being used in production processes in all sorts of other areas of
history and what's your first look on this industry says oh my god this is really quite a tough industry
because I am selling industrial gases the raw materials are hydrogen is hydrogen how can I always make
money by selling a commercial gas especially when I sell to many customers who often have bargaining
power.

Their large manufacturing companies are made with feedstocks like petrochemicals and I have no
control over the price of the feedstocks, so if the commodity price goes up I'm in trouble if I sell a
commodity gas again. Not such a good element of the industry, you know, it's not that hard to get into. I
mean a lot of people configure it, use the figure how to make helium or hydrogen and have a little plant
in the factory and a lot of the customers decide that I don't want to buy that but want to make and
manufacture my own industrial gases in house You right right in my factory right on the production line
okay so here's another industry your first look doesn't say too well I don't want to play here that's your
first instinct but what we're learning about industry analysis is that we have to, we have to be
challenging, we can't just take a superficial look at the industry, we need to dig a little deeper, and when
we dig deeper into this industry, what we've learned is actually quite exciting and interesting.

In fact, the Companies in this industry have done very well, and the reason is that if the superficial look
reveals the true industry structure n I don't really realize, just one example is that probably the most
interesting thing about the industry is the cost. Transportation is very high to move gas from your facility
to your customer, it takes a big truck, transportation is very expensive, it has to be transported under
pressure and you have to have a large tanker truck to transport it to the customer's site it has to be
unloaded pumping the gas through you pumping it into the tank there and transportation costs means
you have to be in this industry to be efficient, have to have a high customer density.

So if you just have one customer and then you have to buy and drive all the way to Mumbai for a
customer and spend all that money driving this truck full of helium over here and you can offload a little
bit for a customer, your expense will be very high, but when you come to Mumbai and you have 17
customers and your trucks go from one to the next and they are actually all nearby, that makes your
business super efficient compared to the guy who just goes to one or two customers will deliver, the
transportation costs take a very superficially lousy industry and make it a very attractive industry
because suddenly when you have a dense group of customers in a given market it's almost impossible
for your competitor to attack you , it's just too expensive, they never will.

You can afford to get these customers and that creates a lot because you have to commit to it over a
long period of time en build a customer base and this is a very critical product to the manufacturing
process so you don't want to try new products make sure they show up if they don't show up with your
helium you're in trouble and you're fine in your rig , so again I won't go into the details but what I'm
trying to convey here is that we all need to be very experienced in industry analysis in our businesses.

We've looked beneath the surface, we can't, we can't just say, oh, that's the commodity, it's a lousy
industry, uh-uh, it's a commodity, it's quite an attractive industry that's the understands the real barriers
to entry, understands the real bargaining power of the customer and the supplier and and and the
people who have been able to see that have tremendous Built companies in the industry that no one
else wanted to get into, thinking this for the stock market was a lousy industry for a long time, boy were
they wrong, the investors who could understand how attractive this business was, boy were they wrong
well beaten again, you know, what we find in the competition is that concepts aren't that complicated
per se, but actually applying them well is really difficult, and that's true both for the companies but also
for the investors who wanting to find out if a business is successful, if it will hurt, and that never changes
and never will.

There are only two ways to gain an advantage. One is to differentiate yourself- stand out from others. do
Something better could be design, image could be functionality could be service could be almost
anything but you know competitive advantage number one is differentiate and get a higher price and if
you differentiate you better get a higher price because if you If we don't get a higher price then are you
really differentiating, if no one is willing to pay us a premium then are we really better and that's a
tough, honest question to ask ourselves. The other kind of competitive advantage is lower cost, when
we can actually make something cheaper and more efficient, and that's not just luck, it's not just that we
bought cheaper parts this week, but if we can find a way to do it structurally more cost-effectively be
because we've redesigned the way we do things, that's the other kind of competitive advantage, and
really the broadest thinking about strategy starts with okay, which path are we on? to differentiate or to
lower cost

A Path to Differentiation Are we on the path of lowest cost, both are fine depending on the
circumstances, but we usually have to choose which path to take because we're going to really
differentiate ourselves and have better quality and better service and better educated sales people it's
going to be difficult to lower costs at the same time, that's what we've learned, so we need to figure out
which path has been taken and then turn it into a strategy using the value chain, and I hope again that
everyone here with that concept is familiar, it's quite embedded in management thinking now, things
that could be manufacturing, marketing, sales, service, supply chain technology, development.

You see this and this, this idea called a value chain is a way of mapping what operations in this industry
looks like and this slide is just one example of TEL and telecom in the mobile communications industry
so a Sprint or an AT&T in our country, here is the value chain in this business so you can see if you go
back now on cell phones we don't say we need to talk about device coverage what types of cell phones
do we support on our network and then there is one kind of network we need to run the network and
make that network efficient so you get the latches and you don't lose your service and you know you
can hear and so on and then we need to figure out how the pricing at Mobile phones is very
complicated, all kinds of specials, prepaid, postpaid, so there are many choices in activities, invoice
processing, a lot of marketing, advertising, PR, after sales support and so on, so every company has a
value chain, each of your companies has the value chain, and if you are disciplined and strategy, you
need to lay out exactly what this value chain is, because strategy is basically a set of decisions that you
make across the entire value chain.

So what type of network will I be running, what is my pricing approach? What will I do to differentiate
myself from a competitor? What tools will I use for marketing? Do I have many physical locations and
stores, or will I mainly be advertising? what will i do market my services to the other and so on and so on
strategy isn't an infotech thing when it's simply a set of decisions about how we're going to run the
business, including decisions about the technology that we're going to sell the function of our product
the Characteristics of our product our product's technology and a good strategy is a strategy where
there is clarity on the choices we are maaking and there are enough things we do differently to gain a
competitive advantage, so let's talk a little more about that first Kind of key idea here to go from some
kind of value chain to strategy is the notion of operational effectiveness versus strategic positiion.

This is an idea I didn't have when I first published. During my first workbooks in this area, I was mostly
thinking about strategy, but I didn't really make the distinction that there's a lot a company does that is
not a Strategy is there are a lot of best practices if we want to be in the auto industry there are a lot of
things we have to do just to be a good auto company. You know we need to buy the right machines for
our factory Learn how to do good advertising. There are many best practices in any industry and what
we have learned is that if you don't follow best practices, whatever your strategy, you will lose if you
don't buy the latest production equipment, your competitors will win and they are good at it You will
give up too much cost and quality by doing this.

We must understand that we have two jobs in any company, one of which we must implement all the
best practices that we can find by observing someone doing a better approach to the customer, you you
know, customer care, you know we better look at this closely and make sure we're at least at some best
practice threshold, which is operational effectiveness, but operational effectiveness is not strategy.
operational effectiveness is doing the same things as your competitors better and better and better, it
raises the bar on what all your competitors are doing. Your competitors have a factory, they have
machines, if you buy the latest machines first, you have an operational advantage better than them until
they buy the machine, but that's not a strategy.

Strategy is on top of operational effectiveness, you have to run the business kinda well, but beyond that
you have to have a strategy and that strategy is building on best practices including the choices that are
going to define your uniqueness in the business. But if we then include the choices that define your
uniqueness in the business are both Things matter if we are just sloppy and don't improve our
operations, our Operational effectiveness we will lose no matter what strategy we have, but just being
operationally effective will not lead us to superior performance because all of our competitors share the
same best practices as we do we're going to implement if we really want to, to win we have to do both
and we have to make sure we're clear about what we're doing and that's a very, very important
difference, you know, the question , which I used to always get, you know, 15 ten years ag, can you be
low cost and differentiated at the same time, and the answer is usually you cannot, but the cases that
look like you would are cases where the competitor has lousy operational effectiveness, then you can be
both low cost and differentiated, but if you have a good operationally effective competitor, you have to
make real decisions to differentiate yourself or be more cost-effective, and you won't be able to do both
at the same time. know your path

At the same time, you'll probably have to decide which path you're on Path of Differentiation my on the
path of being the lowest cost producer to have a successful strategy We understand the process
involves you knowing these basic conditions number two have a truly successful strategy We need to
define a unique value proposition We can't just trying to do the same thing our competitors are trying to
do, we have to do something unique and that involves serving a different set of customers that we are
targeting for the large industrial companies our competitors are looking for the medium sized smaller
companies, that's part of the value proposition, which customers are we actually trying to do again
Serving a lot of companies, the customers they have, they somehow got lucky, but key ideas in
strategies is You have to choose your customers.

You have to actually choose who your customers will be, and if you choose I want all customers I want
to choose to serve every single customer, that's usually not a good choice, because customers have very
different needs, especially in a complex economy like this, you know, another question to ask the
customers that I want to serve, which of their needs I would like to fulfill in a uniquely good way I just
get the idea that I'm going to try to provide the client with everything they want, but actually you know
that most great strategies don't, or at least are very specific about which client group and then you say,
okay, me will take care of this group of customers and then I will really meet all of their needs, but the
idea that we just try to meet every need that someone ever comes up to and asks us to meet is not
usually a good strategy, and then we have to make that price decision.

Do we want a premium price or are we just trying to keep up with the other or are we offering a
discount because we think we are more efficient and able to keep up this discou nt and still make good
profits you know this one company that is on its way to India. I don't think it actually opened but it's
struggling to get a foothold in India as a number of companies have had to in the past The most
extraordinary companies in the world in the home furnishing sector EKF some people call it I don't care ,
it depends if you speak more Scandinavian if you speak more American and this is a company that sells
home furnishings and that's a great strategy The example strategy starts with a unique value proposition
and what you see here is one Kind of a simple description of what their value proposition is, who are the
customers they really want to serve and what they deliver to those customers in terms of products that
meet those needs and where they price it so I'll do that.

I won't read this, but take a quick look. Okay, and you know, what's interesting about this value
proposition is that no one's ever seen it Before this company, no one had segmented customers this
way. Nobody had ever thought of customers with relatively small living spaces before. This was an
innovation in thinking about segmentation, and a lot of great strategies involve this new way of looking
at customers and segmenting customers. Like these guys, this strategy was a real breakthrough in the
type of operations for a furniture company, and we'll talk about that in a moment . Here's another great
strategy example.

Remember I was talking earlier about heavy trucks and how difficult it has been in the industry Average
profitability isn't that good. Here is the company in the industry that is the premium company with high
profitability. It's called the Pack R. It's a pretty global company, and you kind of see what their value
proposition was, so eye care was about really low prices. This company is about a premium. We're going
to get a 10% premium on our trucks because our trucks aren't going to look like your competitor trucks.
Our trucks we're going to have. We have an operating cost alignment strategy that allows us to actually
differentiate ourselves, but that is a wonderful strategy, because this company found that the big
customers in the industry weren't the customers that they thought were the good customers, they
actually found that the small customers, the people who owned a truck and they Driving trucks for a
living, that was the really interesting customer in this industry, so they built whole strategy around that
narrow customer base about 25 to 30 percent of all truck buyers buy a truck or two and all drive their
own truck okay second test of a great strategy Think again about your own business here a distincivet
value chain if you don’t operate your business differently, your value chain won't be real.

You have to have a different operating model that aligns your positioning kay so if we do a KO and I'm
not going to go through that if you look at how they run their business compared to every other
company in their industry, they do different, they have another Value chain, their stores look different
than their customers, service looks different, their logistics look different and everything is geared
towards that value proposition. Their breakthrough idea was that they wouldn't sell fully assembled
furniture. They send both parts, they sell parts in a box. So when you go to Ikea, you buy, you walk out
with a box that contains the pieces of furniture you just bought, and you have the option of actually
taking the furniture home yourself, as the IKEA house understood that which was good most liked that
but the customers they liked they wanted to serve who were very price conscious they were willing to
supply them themselves If they were going to supply their own furniture and by doing so and too having
an inbound logistics for not whole sofas but the parts for a sofa in a box, they save huge amounts in
logistics costs and they took those savings and passed them on to the customer in the form of a much
lower price, but the customer then had to buy the furniture assemble yourself.

I have a daughter, one of my daughters loves this company and I was privileged to help her, you know,
rent a car when I was visiting her in college so we could bring the crate home for my cat. I went to, I
came every time, and then you have to take the box home, and then you have a you know, then you
have to assemble it, it's like someone's birthday you have the birthday present for ours or for Christmas
putting together is like putting the toys together and you know that could be fun i honestly found it very
tedious i have a lot of fun but my daughter really liked this company with the promising work for her it
didn't really work for me , in fact I hated every minute that I was in this store.

I didn't like the service. There is no service. I organized the store so that you get lost and you can't get
out when you check out you have to go to these big shelves and and and you have to pull down the box
of what you buy slept the box you know to the check-in counter and pay your bill and then you have to
take the box out and put it in your car and then you have to haul the box in my case to your daughter's
place and then you have to spend 30 or 40 minutes figuring out how to put this thing together not a
good idea for me my daughter loved it it met her needs at a reasonable price.

They have very nicely designed products and style products that are very Scandinavian, but they're very
low cost, they're really high quality, they're really cost effective to work with, and that tells you
something very important about strategy, and that's one of the things a great strategy does, it doesn’t
please every customer. If you are trying to please every customer, youhave no strategy. A good
strategy makes some customers unhappy. When every customer is satisfied. You're In Trouble You'll
Never Really Succeed Strategy is about choosing who exactly you want to please, and then build a value
chain to achieve that. Another critical part of a successful strategy is the concept of trade off. A trade-off
is where you sacrifice another benefit in order to gain a benefit achieve and that is what i knew they are
getting this really low price for nicely designed furniture and to do that you had to go through an
awkward experience in the store you had to take the product to your home and do it yourself put
together and that was a compromise they were willing to make because they understood that that's
really what their customers do, that was the trade up.

They wanted to strategize to make decisions about what to do but one of the phrases I said at one point
that I found very powerful is that the essence of strategy is what you don't do, it is the Service you don't
provide, it's the features you don't provide, it's the benefit you don't provide, that's the essence of the
strategy, if you can be clear about that, that's a good sign , that you can be clear about your overall
strategy, ok, so time is very short. But in order to have a successful strategy, we need to connect the
dots along the value chain.

You have to make sure that the service is related to the way we label it. There is continuity, you can't
change strategy all the time, it takes about two, three years to implement a strategy because you have
to align all of those pieces with what your ultimate position is, and continuity again becomes critical to
you. I can look at some of these examples and talk more about them when we think about strategy. One
of the things that as you know I find very helpful and could be helpful to you is what kind of competition
are we creating in our industry and the wrong answer is that we are creating zero sum competition, we
are all doing the same thing, us beating each other on price, that's not the competition we want, but
what we want to create is really more of a positive competition where we We all have a different
strategy We're all trying to do something a little bit different We serve different Customers We try to
meet different needs That's the kind of competition we want That's the competition We are actually the
whole industry can be more attractive and competitors can do well again in terms of corporate strategy.

I've already covered the idea that there are multiple levels. If you are in a very large group there may be
a third level. Because the old company the whole company has so many stores to manage, you need to
group them together so there may be a level of group strategy from which Knowing what are the key
issues of strategy at company level in different companies you are in becomes really critical because you
need strategy for every single business and sometimes companies get confused. I find that you usually
think too broadly about your business, you will find that the trucking industry is not really a single
industry.

There are heavy trucks and light trucks and they are completely different businesses. So you know that
the key question for corporate strategy is figuring out what the different lines of business are. Do we
have the right portfolio? Is each business area attractive in and of itself? Ownership of the business Does
the business reinforce each other Do we have synergies Is there a logic to how the businesses fit
together etc. Okay, that's good. Those are the key questions of strategy at the business level. It's a
different animal. It builds on the business strategy, but it's different throughout the corporate strategy.

We're trying to create synergies between the companies, if there's no synergy, we're probably better
off, you know, selling it, because we can't add value, and that just relates to the kind of synergies we
might be looking for , and we need to make sure they're real, we need to make sure they're actually
meaningful, they're not just a small benefit, they're a big deal. You know here's the ultimate synergy
Disney company that has many, many different businesses but they're all united in a common
positioning like characters and and and and you know video properties and whatnot that's in all of these
companies and this company has been remarkably resilient in a very unstable industry where you then
make a good film for a few years actually make a lousy film, people go up and down, but it has a really
robust corporate strategy that has given them a lot of resilience over time , and I think let me end this
session by talking about what our job as strategy leaders is and what I found that the leader of a
business unit that you know and the CEO of the entire company ultimately has to be the chief strategist .

The reason is that no one else has the right perspective on the strategy except the ultimate leader who
is everyone down in the organization thinking about their part of the company their business their
function the marketing department the manufacturing department the research and development the
only person who really has the true strategic perspective is the person who actually runs the entire
business, so you have to use your people to get information. You have to make it a team process, but
you also have to decide that strategy can't be a popularity contest , where everyone gets a vote,
because the essence of the strategy is about choices, and we have to make a one clear set of choices,
we can't, we can't kind of well, we're going to do this and we're going to do this and we're going to do
this and we will do this oh yes marketing i know you want to do this we will be a bi little about it only to
end up not doing well.

You're not going to have a strategy, as a CEO you have to make sure you have a great strategy process,
you have to make sure that person is everything, you have the right business units organized and they
have a yacht, you have a great team working on a strategy For each of these business units, you have it,
you need to make sure you're answering the right questions. You shouldn't be asking the question how
much the industry is going to grow over the next decade and thinking that that's the key question that's
one of the other key questions that any strategy for the industry has to have as of today how would we
rate our performance throughout the value chain Who is a competitor Our main competitors How do
they do Wo t He, what do their value chains look like?

There are many key questions in a good strategy and you know that the only person who will make sure
you have the right questions is yourself because you are the person who is actually responsible for
putting them together and at the end of the day who To make decisions, you know you need to make
sure the right ones are involved in the strategy process. You know this is your job as a leader and what
we know is that the strategy needs to be carried out collectively by the multifunctional team, give its
strategy to each functional department and let them do the production strategy and the marketing
strategy and the service strategy that never works .

We have to get these people together to develop the strategy together because all these pieces have to
fit together, you know there is no smell, but marketing. Good marketing only exists for a specific
strategy, so we can't outrun the marketing people and do good marketing. We need to put their role in
the context of the overall positioning we're trying to achieve in the market, that's what a great strategy
is all about and guess whose job it is to make sure you are the person who has the holistic view of the
company, ah you know your board we found you need to let your board see the strategy before they
have to approve it.

The board wants to be part of the process. Now it's not his job to strategize but they're usually smart
people and it's really helpful to get their input and then you can tell them what to approve and as long
as they've been part of the process and that Feeling like they have some ownership of the process will
make them feel really comfortable, but if you do, just come by one day and say, here's my strategy.
Everyone vote yes then you will eat up your capital with the board and you will need the board to
support you because every business has its ups and downs and you need the board to be there and
understand what you are doing and how to do it, so they don't panic when something goes wrong, and
when the stock price falls, they don't freak out.

A great strategy needs the commitment of the board the awareness of the board the understanding of
the board and how to involve them in the process without them thinking they are doing it They know
that this is your job as a leader and depends on your company and how serious your problems are. You
have to calibrate how much you want to play right in the process as opposed to some sort of monitoring
of the process and that really depends on the situation. When you get a real turnaround, you have to
direct the whole process, when you get into a really bad situation, you just have to direct the whole
thing.

Don't delegate it to strategic planning, but you know this is a pre-stable company, you have a good
team, then you really have to put your mind to it, get the process right and then check in and see how
you do one of the things we learned. I have done a lot. I've been training now.You probably know 350
front runners around the world. They come to Harvard for a boot camp. We call it the new CEO
workshop. When a CEO is appointed, we invite them in and we have about a dozen, you know, two or
three times a year we get together as a group and we go through them, you know what You have to do
to be a successful CEO and we know a lot about that and we go through that process and one of the
things we do in this workshop is we talk a lot about why a great leader does not want to reject the work
of his/her team and the worst thing you want to have to reject is the strategic plan, people do a lot of
work, they think very hard to get upset and they come up with a great plan and it is presented to you.

The worst thing you have to do is say no, because if you initially reject this plan, it's a reflection that
you've created a lousy process, the wrong people asking the wrong questions, it's also a sign that They
haven't checked that they are moving in the right direction. They want to make sure they are thinking
correctly. You're on the right track do it for them, but review what you want to do in a strategy process.
You want to be really happy and say that's great work, that's great work, and then you're going to
motivate your team to be really accountable and really move the business forward, but when you reject
their strategy because of what they did, didn't really pay much attention and you just have the meeting,
after six months you know what's going to happen.

Everyone on your team will always want you to approve something before they work on it too much,
they become a dependency of you as a leader so that one of your most important responsibilities as a
leader is essentially creating the right processes for your team to be successful d and checking in so that
when people get off track, they follow along you are not satisfied, your do not have to reject their work
what you want to do is that the CEO wants to celebrate your work team wants en you're celebrating the
strategy that you came up with and that you're comfortable with because you were there and you
orchestrated the process and you checked in and you gave feedback and and and the group learned and
and here we are at something great, That's what strategic leadership is all about.

At your level, most of you in this room are fine at this level, so I think it's still nice for me to do this many
times a year each year of the basic ideas that I think we all really do understand and then have to
translate into reality if we want to have a great strategy so Amit I think we have some time for some
Q&A so let's open that up but these slides will post you know that Once they are available to you, you
can go to the d There is much more to be accessed through the websites and other materials, but
ultimately there is nothing more important in building a truly world-class business than getting these
things right do so man thanks you better go haha