Outrage? Calgary should be Celebrated! (Or, "Training is not a waste.")

Earlier this week a CBC headline screamed, "City spends $80,000 for training course from Disney". The subheading read, "Top city managers take training from entertainment behemoth, raising hackles of taxpayers' group."

The headline caught my attention because I was impressed, not outraged.
First, let's get my biases in writing this post out of the way. I'm not affiliated with the city of Calgary in any way, although I've been there more than a few times and I think it's a great place filled with great people. I don't know Jeff Fielding (Calgary's City Manager) or anyone else that may have been involved in the decision to invest in this course, although based on the actual decision itself, I like them already. And I'm not affiliated with Disney in any way, although it's been my very favorite company since I was a child and remains #1 on my list of companies I'd like to work with before I retire.

I do have a bias towards ongoing education, and a strong bias in thinking that government should always strive for the level of innovation and efficiency most often found in the private sector. Also, I consider myself a capitalist; I don't particularly like paying taxes, but I recognize they're necessary to have a properly-functioning, civil society, and I'm fine with contributing my fair share so long as the government is responsible with the public purse. These biases will inform the tone of this piece.

Second, let's talk about that $80,000 cost. The article clarifies that the cost of the course itself was actually $70,000, and there was an additional $8,300, "for hotel rooms for the facilitators, renting a meeting room, providing catering and renting the audio-visual equipment needed for the course." But that makes for a messy headline, so I can see why the CBC went with the $80,000 figure.

Speaking of headlines, it's well documented that people increasingly read the headlines but not the actual story that follows. Those who are outraged at the cost of the training program might have missed the fact -- buried in, you know, the article itself -- that this covered training for 58 city managers. Even using the rounded $80,000 figure, that's a cost of just $1,389 per person, not at all unreasonable by Executive Education standards. But, to be fair, "City of Calgary invests reasonable amount of money to train their employees to be more efficient, friendlier public-servants" makes for a terrible headline.

Third, let's talk about that "Mickey Mouse" course. The average person might know Disney only as a creator of movies and memories, and the average kid might know Disney as a creator of magic. But the Disney Institute, the professional development arm of The Walt Disney Corporation, is renowned in the business world for its unique and insightful training courses; it "provides professionals from the private, public, and social sectors worldwide an opportunity to experience courses grounded in the time-tested success and insights from The Walt Disney Company." And what lessons can the average Joe and Jane learn from an entertainment company, you might ask? Think about it: this is literally the company that created "the happiest place on Earth", where customers are "guests" and employees are "cast members" and where adults and children of all ages go to make lifelong memories. Is it any surprise that they've learned a thing or two about exemplary service over the years?

I haven't had the pleasure of attending a full Disney Institute course myself, but I did have the opportunity to hear a senior member of the D.I. team provide a keynote address called, "Essential Beliefs for Magical Quality Service" during an off-site meeting I attended last year. If all of their courses are as insightful and well-presented as that keynote, then the cost of a course would be worth every penny.

And lastly, let's talk about the "outrage" we should all be feeling.

The article mentions a few times that the contract was single-sourced, implying that the city might have found a better deal if a traditional bidding process had been used. Well, of course it was single-sourced: there's only one Disney Institute, and if you want to take a Disney Institute course, that's where you have to go!

Were other really great training courses available? Undoubtedly. But the city manager obviously had respect and appreciation for the Disney way of doing things, and that's the course he wanted his staff to take. When you feel what you need is a glass of milk, it doesn't really matter if a can of Pepsi is on sale, does it?

Frankly, I think the fact that flew in the Disney facilitators to a single, central area instead of flying out 58 members of his staff to the training facilities at Walt Disney World was a remarkable show of restraint. (Because, let's face it, flying out to Disney World to take a course would have been a wonderful boondoggle for that team.)

How about the outrage from the Canadian Taxpayers Federation; a member of the group is quoted as saying, "the city probably could have gotten similar training for less and shown more respect for public money."

I've already stated how the per-person cost of the training was actually quite reasonable by continuing education standards, and that the course was taught by a world-renowned training institution almost universally respected for their service orientation. So, remind me, where was the disrespect for the public purse?

On the contrary, I think Mr. Fielding showed tremendous respect for the public. He wants his city to operate in a more business-like fashion, and his team to treat the public as customers. (Anyone who has had to walk into a traditional government office for anything would no doubt see the value in that, wouldn't they?) And to train his team in this new, customer-first way of thinking, he spent $1,389 per key employee. And this expense, by the way, happened only after he arrived on the job and had already found ways to "save $60 million in its operating budget and over $100 million on capital projects."

To recap: after saving the city $160 million, he spent $80,000 to train his staff to be more service-oriented towards the public and more respectful of the public purse.

Outraged? Yes, we should be outraged. We should be outraged that more cities across our debt-laden country aren't doing exactly the same thing.
If you agree that Calgary City manager Jeff Fielding should be celebrated, not criticized, for his decision to train his team, please share this post. Let's show some support for managers everywhere who believe ongoing education is important and training represents an investment in people.


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The Pepsi Problem: Why Disney should absolutely not buy Netflix

In just the past five months (since June 2016), Microsoft announced they would acquire LinkedIn for $26.2 billion, AT&T proposed to buy Time Warner for $85.4 billion, and cash-rich companies including Alphabet, Apple, Salesforce, and Disney have all been mentioned as potential suitors for Twitter. (Which basically everyone assumes will be sold between now and late next year.)

So perhaps in this environment of mega-mergers, it's not surprising that at least one analyst believes entertainment powerhouse Netflix is a takeover target. (Specifically, the argument he makes is that for Alphabet, Apple, or Disney, Netflix makes more sense as a takeover target than Twitter.)

On the surface, it seems like the two companies would be a fit. Both Disney and Netflix are enviable, innovative entertainment companies. Both are exciting, beloved brands. And both create and distribute wonderful content. (Disney has a few decades head-start in the content-creation game, but Netflix has already proven to be a quick study, with originals like House of Cards, Orange is the New Black, Stranger Things, and Marvel's Luke Cage earning high praise from viewers and critics alike.)

But if Disney were to acquire Netflix, it would be a very rare strategic misstep for Disney, because they would find themselves with what I'll call a "Pepsi Problem".

Food and beverage behemoth Pepsico, as you may remember, used to also be in the restaurant business. They initially bought Pizza Hut in 1977, and followed that with the acquisition of Taco Bell in 1978 and KFC in 1986. But they spun-off all three brands as a separate entity in 1997; today that very successful business is known as Yum! Brands. (Disclosure: I worked for Yum! from 2008 to 2010, and for Coca-Cola from 2010 to early 2015, but all of this information is of public record.)

Why would Pepsi sell the restaurant business, which as this Bloomberg article noted, has significantly outperformed their core business over the past 18 years? Bloomberg Intelligence analyst Ken Shea wrote, “The restaurant business of Pepsi was more volatile than the rest of the business -- it was more capital-intensive, harder to predict,” he said. “It didn’t really fit into its wheelhouse, and it was more of a complication." All of that is completely true. But there's another reason too.

If you owned a restaurant at that time, think about your options in deciding which beverage company you would prefer to support. You could choose to serve Pepsi to your customers, but then you'd have to worry about the fact that they might use your hard-earned dollars to subsidize their restaurant business and compete with you. Or you could just choose to serve Coca-Cola, who in addition to offering a terrific portfolio of well-loved consumer brands, wasn't in the restaurant business at all. When you put it that way, it's a fairly easy decision unless Pepsi was significantly less expensive, right?

As it turns out, owning their own restaurants may have significantly hurt Pepsi's ability to secure new business selling to other restaurants, and the decision to spin-off the company may have been a matter of "too little, too late." Last year, Business Insider researched 34 of the top restaurant chains to see if they offered Coke or Pepsi, and Coca-Cola came out as the undisputed winner in terms of the number of restaurant-chains under contract by each company. (Arguably, Coca-Cola also has a greater number of "prestige brands" within its portfolio, speaking from a brand perspective.) Given that large deals of this nature are generally multi-year affairs, and that in any relationship the advantage goes to the incumbent when contracts are up for renewal if all other factors are equal, is it unreasonable to think that Coca-Cola's strength in the restaurant segment began when Pepsi decided to be a restaurateur?

What does this have to do with a potential Disney acquisition of Netflix? Everything. Because there's a significant risk that by acquiring Netflix, Disney would create its own Pepsi Problem.

Disney, first and foremost, is a creator of superb content. Netflix also creates its own content -- and as noted above, a lot of it is fantastic -- but the strength of its current business lies more in its impressive content distribution capabilities; it has over 83 million subscribers that willingly pay a monthly fee to access content created by a large number of sources.

And if you were a content creator that lived outside the House of Mouse, how willing would you be to supply content to a distribution channel owned by your direct competitor? (Or more realistically, how willing would you be able to do so for anything less than an extravagant licensing arrangement?) Netflix's non-Disney content would either become much less available or much more expensive, and in either scenario, would make Netflix less attractive as an acquisition target from a return-on-investment perspective. And let's not ignore the "investment" that would be required, since Netflix currently has a market capitalization of over $54 billion, and Disney would likely have to pay well in excess of that amount in order to acquire it. For context, the largest content acquisition deal Disney has made in its history is the 2009 purchase of Marvel Entertainment for just over $4.2 billion.

Disney and Netflix already have what appears to be a successful distribution and production partnership, so what would be gained by Disney from acquiring Netflix outright?

If Netflix were to be for sale, it would be a very strategic acquisition for Alphabet, assuming they would be willing to introduce advertising to the platform in a smart, differentiated way. (I described how they could do that here.)

But Netflix hasn't stated any desire to sell. And if they did, Disney definitely shouldn't pursue it.


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