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Welcome to Games & Plans - A Strategy Newsletter. We’re exactly what we sound like; a newsletter focused on strategy.
What kind of strategy, you ask? Business Strategy. We have lots of ideas for this experiment, but for now, we’ll write about what we perceive to be the most noteworthy strategic business decisions of the week, both good and bad.
As we’re launching here at the end of the year, this first newsletter will focus on the top strategic business decisions from Q4, but as we roll into 2023 you’ll be hearing from us weekly.
We’re a small group of experienced millennials who have spent the early part of our careers in consulting, strategy & operations and chief of staff roles across numerous companies & industries.
One of the common points of feedback we’ve heard is that our fellow professionals want to build up their strategy skills, but don’t know how to do so and don’t necessarily want to rack up the B-School debt for a more formalized education.
Our weekly newsletter aims to give you the tools & frameworks to help you leverage strategy in your career, by aggregating the most recent real world business decisions, explaining the strategy behind it and why it’s a winner or loser.
Please, subscribe here, follow us on LinkedIn & Twitter or even respond directly to this email. However you want to hit us up, please do so! We want to make this as useful as possible for you, our wonderful readers. We promise to keep it short & sweet, and *hopefully* a fun part of your weekly routine.
Thanks - here we go!
We’ve created a strategy index HERE for you to familiarize yourself with the various types of strategies and their definitions.
Generally speaking, there are four types of strategy (Corporate, Competitive, Functional & Operational), with seventeen sub-strategies across the four branches. You may find slightly varied definitions depending on whether you’re talking to your business school teacher, ChatGPT bot or good ol’ Google search, but for the most part these are widely accepted. We’ll be sure to call out which Strategy & Sub-strategy we are talking about in our weekly analyses.
Now to our regularly scheduled programming, “Makes & Misses''. In Q4 there were two strategies we liked and two we liked a lot less.
MAKES 🏀
Episode III: Return of The Iger
In late November, Bob Chapek was abruptly pushed out as CEO of Disney and replaced by former CEO & Cashmere Prince, Bob Iger. Iger addressed his staff at a Town Hall in which he talked about a shift in strategy for the streaming business, telling fellow Disney employees that they needed to start chasing profitability, as it will be demanded of them (and in some cases, already has been).
This is an example of a stability strategy, which rolls up under corporate strategy in our strategy index. By choosing stability, a company focuses on improving the profitability of its product or service. This is a shift for Disney, who launched Disney+ in Q4 of 2019 and, until last week, had prioritized growth strategy in an all out pursuit of customer acquisition and revenue growth to compete with the likes of Netflix, HBO Max, Prime Video and the rest of the streaming war bandits. Sidenote: I made up streaming war bandits, but I kind of dig it.
Stability Is The New Sexy
Your corporate strategy *should* be a result of two things; 1) the maturity of the market in which you are operating and 2) the current macroeconomic environment. In the early days of a new space like streaming, markets will attract several suitors. In an attempt to build revenue and staying power, companies will prioritize growth and spend boatloads of money on categories such as staff, marketing and product development to do so. As long as customers are being acquired and market share is being taken, costs are justifiable. As a market reaches saturation, growth reaches a ceiling.
There's only so many customers that can be serviced, after all. At this point, a company should evaluate and reallocate its spend on growth and focus on maximizing its profit margins so it can invest in new, other lines of business. We’re starting to see this in streaming. While the market is expected to grow through the next decade, the rate of growth is beginning to slow and the number of market participants is becoming saturated. The days of attracting subscribers in large chunks may be gone
What can accelerate (or decelerate) this shift is the economic forces at play outside of day to day business operations. For the last ~13 years access to cheap capital has been abundant, so borrowing as a means of pouring gasoline on the fire in pursuit of growth seemed like a no-brainer. However the Federal Reserve has been raising interest rates and driving the cost of borrowing up in an attempt to rein in inflation. This means it’s more expensive for a company to borrow money, and with less certainty about the ability to grow it makes sense to pull back and focus on what a company can control: costs.
There’s A Tide In The Affairs of Streaming
Iger & Co know if it's taken at the flood, will lead on to fortune for Disney’s shareholders, which as we’re writing this has shed 43% of it’s value YTD, largely due to streaming losses and investors fearful of an impending recession in 2023.
So, does this mean we won’t get second seasons of She-Hulk and Obi Wan? Maybe, but the more likely scenario is that we get those shows just not all at once. Disney is a content powerhouse, as evidenced by its 147 Emmy nods in 2022, Ewan McGregor rediscovering the force wasn’t the problem - it was just too much too fast. Look for Disney to slim down their release schedules and emphasize quality over quantity in 2023.
Barnes & Noble, Master of The Plot Twist
In December Barnes & Noble CEO James Daunt told WSJ, “We’ve now got both the profitability and the confidence to start opening up stores again.” This bucks a nearly 15-year contraction in branded stores for B&N, which peaked prior to the Great Recession in 2008.
This strategy rolls up under operating strategy in our Index and we love it because there are flavors of market penetration and customer engagement.
One of the reasons folks find business strategy to be confusing is because a decision doesn’t always match 1:1 to a specific strategy - but that’s ok! Great strategies can accomplish multiple goals for an organization, and Daunt hinted at this to the WSJ.
According to Daunt
B&N is experiencing an increased demand for books, as a second order effect of the pandemic, books became a more popular form of entertainment. Take this nugget and combine it with a surge in in-store shopping post-COVID and you have a game plan to increase your market penetration for book sales in the Big Box Retail market. For years, Amazon has been a bigger disrupter in the book sales industry than Harry Potter was to Voldemort’s plans for a muggle-free world, but while they dominate online sales the Seattle based juggernaut has yet to figure out its retail presence, which has created this opportunity for Barnes & Noble.
Newer locations will also be more thoughtfully designed. Not only will availability and cost of real estate be a driving factor, but also, whether or not the location can be built into a space where customers will want to linger and get lost in a new book. The B&N team noted that previously stores were crammed with books and staffed with cheap labor, which made for a poor experience. Going forward, the large book seller will emphasize the “maze” style often found and championed in independent bookstores, and considered a more pleasant customer experience. Satisfied customers are more likely to be loyal customers and generate recurring purchases, which is where you get the customer engagement portion of this decision.
The Operating Strategy In The Rye
Operating strategies help drive the higher level vision and mission based corporate strategies. B&N’s Mission emphasizes omni-channel retail, helping customers and sellers achieve their aspirations and being an asset in the community. When you read that and then examine their decision to thoughtfully expand their retail presence and improve customer experience you can see they’re aligned as an organization, which is why we believe this is an example of good strategy and look forward to checking back in as they execute.
MISSES 😿
Snap Back to Reality, says Spiegel
In mid-Q4, Evan Spiegel ordered snap employees to come back to the office at least 4 days a week, in order to sacrifice for the “collective success.” This would be an example of a functional strategy called HR / personnel strategy, if it weren’t hiding the fact that it's really a stability strategy.
Snap’s Margins Disappear Faster Than Those Late Night Snapchats to Your Crush
If you refer back to the above discussion on Iger & Disney’s shift to a stability (profit) driven strategy, you’ll remember we talked about how the market no longer supports unadulterated growth, and instead wants to see companies churn a profit.
According to macrotrends.net Snap has exhibited growth between 2015 and 2021 at an 80% CAGR, which is impressive. However, they’ve never been profitable in their existence. There’s not much of a path to profitability this year either, and they even refused to provide a full year guidance in their last earnings report. So if by this point you’re wondering “how would continued real estate expenses and forcing employees back into their 30 offices around the globe make Snap more profitable?” you’re on the right track.
Social Media Sleuthing
Snap committed to a 20% workforce reduction *cough* layoff *cough* back in August, but that likely wasn’t enough. Evan Spiegel has been able to sit back and watch employees revolt over forced office returns at other name brand companies like Goldman Sachs and Twitter, and we here at Games & Plans believe Spiegel is banking on a similar response.
“But, why would he want such a thing?” you ask.
Simple - cost savings and saving duck-face. Snap won’t have to pay severance to employees that voluntarily quit and probably won’t be subject to the same media as the rest of the big tech layoff crew.
Despite a push towards profitability being the correct move, we see this as a trip to Brick City for a few reasons. First, it could totally backfire. Although they’ve committed to slashing costs elsewhere, there’s no guarantee that employees will be pissed enough to quit. If they don’t get the exodus (cost savings) Spiegel is hoping for, he’ll have to double back and announce another round of layoffs anyway. Second, it creates misalignment and mistrust. Tough news is easier to swallow when it’s delivered honestly and with compassion. Snap could even create a greater sense of buy-in if the exec team was clear about their new strategy to achieve profitability. Now employees may return, only to find some of their peers and teammates were sent packing anyway, which will damage productivity and morale.
Despite Snap only capturing a fractional chunk of the social media market, they punch above their weight in terms of relevance, especially amongst young people and they have a creative executive team so this certainly won’t be the last we hear from them.
We’re sorry, but the person you have called has a voicemail box that has not been setup yet… Goodbye!
Last but not least, Budget travel company, Frontier Airlines, becomes even more budget in a competitive strategy that aims to make them a cost-leader. Just this past month, Frontier announced that they would be doing away with their customer service line and all their customer service agents along with it.
A competitive strategy is exactly what it sounds like - it is a decision on how a business unit or product will beat its competitors to win a specific piece of the market. In this instance, Frontier is taking the costs it allocates to a customer service team and will likely pass on those cost savings to you, the customer, in order to drive greater demand in the budget airline market.
Who Ya Gonna Call!? Uh.. Ghostbusters…
Frontier will still keep and post a public number, but that number will direct callers to a number of their other customer resources like Whatsapp, their 24/7 chatbot or their social media which is operated by a human being.
Frontier noted that labor rates in the human voice space are high, and a person can only handle a single 1:1 interaction at a time. The company is claiming they’ll be able to serve more customers, faster by leveraging AI and automation.
We Don’t Buy It
This strategy comes after a rough few months for the airlines that claim to have the cheapest prices in the industry. At the end of the summer fellow budget airline, Spirit, terminated a merger agreement (there was another woman - JetBlue) and in Q4 they were fined nearly $2 million for not refunding customers in a timely manner.
Being a budget operator often comes with more limited business options than a full service provider, and the team here is certainly active and creative. It’s not a bad thing to see variations on strategy - after all, strategy is not just a “set it and forget it” tool. However, similar to the Snap example, there's a bit of lipstick on this cost-leader strategy trying to masquerade as a functional strategy. Additionally, we’d be concerned about taking the human element out of such a customer centric business, at a certain point a customer will adopt for the additional cost to not endure a painful customer experience and according to a business insider survey, while consumers are increasingly engaging with chatbots and AI, 60% of them still prefer the human interaction.
That’s all for Makes & Misses this week. Let us know what you think and if there are any strategy stories you read this week that caught your eye!
Now let’s wrap this thing up and call it a day…
Strategy Roles That Caught Our Eye
Content We Consumed This Week
Streaming - Industry on HBO Max
Thanks for reading! We’re excited to be on this ride with you.
Happy Holidays 🧑🎄
G&P Team