7 Powers: The Foundations of Business Strategy

let’s define Scale Economies: A business in which per unit cost declines as production volume increases.

Strategy strategy value Strategy Dynamics Strategy Statics industry business market Description Strategy (with a Capital S) is the intellectual discipline sometimes called Strategic Management. I define it: the study of the fundamental determinants of potential business value.

The set of conditions needed for persistent differential returns. Power r

In the case of Netflix, their lead in subscribers translated directly in lower content costs per subscriber for originals and exclusives.

Power: the set of conditions creating the potential for persistent differential returns

Boundedness. As powerful as this Barrier is, it is bounded by the character of the network, something well-demonstrated by the continued success of both Facebook and LinkedIn. Facebook has powerful Network Economies itself but these have to do with personal not professional interactions. The boundaries of the network effects determine the boundarie

Scale Economies: Benefit: Reduced Cost Barrier: Prohibitive Costs of Share Gains

Our first public “culture deck,” released in August of 2009, identified nine highly valued behaviors. The first was “Judgment.” As we elaborated: You make wise decisions … despite ambiguity You identify root causes and get beyond treating symptoms You think strategically and can articulate what you are and are not trying to do You smartly separate

In our discussion of Power, I have been careful to characterize it as creating a potential for value, but this potential can only be realized when coupled with operational excellence. Netflix’s plummet in 2011 was the result of operational errors.19 Though the period proved painful, their strategy still remained valid, and their Power intact, so th

Exclusive rights and originals made content, a major component of Netflix’s cost structure, a fixed-cost item. Any potential streamer would now have to ante up the same number of dollars, regardless of how many subscribers they had. If, say, Netflix paid $100M for House of Cards and their streaming business had 30M customers, then the cost per cust