Good Strategy/Bad Strategy

Highlights

• The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.
• A leader’s most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them.
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  • Note: Strategy is diagnosis a problem, designing a guiding policy to deal with the problem, and translating the policy into a set of coordinated actions.
• The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.
• Fluff is a form of gibberish masquerading as strategic concepts or arguments. It uses “Sunday” words (words that are inflated and unnecessarily abstruse) and apparently esoteric concepts to create the illusion of high-level thinking.
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• Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it.
• Many bad strategies are just statements of desire rather than plans for overcoming obstacles.
• Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings.
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• A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance.
• If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.
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• A strategy is like a lever that magnifies force. Yes, you might be able to drag a giant block of rock across the ground with muscles, ropes, and motivation. But it is wiser to build levers and wheels and then move the rock.
• Motivation is an essential part of life and success, and a leader may justly ask for “one last push,” but the leader’s job is more than that. The job of the leader is also to create the conditions that will make that push effective, to have a strategy worthy of the effort called upon.
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• Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.
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• A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp. Thus, the objectives a good strategy sets should stand a good chance of being accomplished, given existing resources and competence.
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• a blue-sky objective is usually a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there.
• When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance.
• Not miscalculation, bad strategy is the active avoidance of the hard work of crafting a good strategy.
• if one has a policy of resolving conflict by adopting all the options on the table, there will be no incentive for anyone to develop and sharpen their arguments in the first place.
• Strategy does not eliminate scarcity and its consequence—the necessity of choice. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others.
• Leadership and strategy may be joined in the same person, but they are not the same thing. Leadership inspires and motivates self-sacrifice. Change, for example, requires painful adjustments, and good leadership helps people feel more positively about making those adjustments. Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.
• the doctrine that one can impose one’s visions and desires on the world by the force of thought alone retains a powerful appeal to many people. Its acceptance displaces critical thinking and good strategy.
• The core content of a strategy is a diagnosis of the situation at hand, the creation or identification of a guiding policy for dealing with the critical difficulties, and a set of coherent actions.
• A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.
• The diagnosis for the situation should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects. This simplified model of reality allows one to make sense of the situation and engage in further problem solving.
• Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it.
• A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage.
• A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than canceling one another out.
• In many situations, the main impediment to action is the forlorn hope that certain painful choices or actions can be avoided—that the whole long list of hoped-for “priorities” can all be achieved.
• Strategy is visible as coordinated action imposed on a system. When I say strategy is “imposed,” I mean just that. It is an exercise in centralized power, used to overcome the natural workings of a system. This coordination is unnatural in the sense that it would not occur without the hand of strategy.
• Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.
• In general, strategic leverage arises from a mixture of anticipation, insight into what is most pivotal or critical in a situation, and making a concentrated application of effort.
• Anticipation does not require psychic powers. In many circumstances, anticipation simply means considering the habits, preferences, and policies of others, as well as various inertias and constraints on change.
• A pivot point magnifies the effect of effort. It is a natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent-up forces.
• Returns to concentration arise when focusing efforts on fewer, or more limited, objectives generates larger payoffs. These gains flow from combinations of constraints and threshold effects.
• To take responsibility is more than a willingness to accept the blame. It is setting proximate objectives and handing the organization a problem it can actually solve.
• Many writers on strategy seem to suggest that the more dynamic the situation, the farther ahead a leader must look. This is illogical. The more dynamic the situation, the poorer your foresight will be. Therefore, the more uncertain and dynamic the situation, the more proximate a strategic objective must be.
• The second, and greatest, problem is that incremental change may not pay off and may even make things worse. That is why systems get stuck.
• in building sustained strategic advantage, talented leaders seek to create constellations of activities that are chain-linked. This adds extra effectiveness to the strategy and makes competitive imitation difficult. What is especially fascinating is that both excellence and being stuck are reflections of chain-link logic.
• A fundamental ingredient in a strategy is a judgment or anticipation concerning the thoughts and/or behavior of others.
• Today, as then, many effective strategies are more designs than decisions—are more constructed than chosen.
• A strategic resource is a kind of property that is fairly long lasting that has been constructed, developed over time, designed, or discovered by a company and that competitors cannot duplicate without suffering a net economic loss.
• The peril of a potent resource position is that success then arrives without careful ongoing strategy work.
• Existing resources can be the lever for the creation of new resources, but they can also be an impediment to innovation.
• A very powerful resource position produces profit without great effort, and it is human nature that the easy life breeds laxity. It is also human nature to associate current profit with recent actions, even though it should be evident that current plenty is the harvest of planting seasons long past.
• it is usually quite difficult to convince buyers to pay an up-front premium for future savings, even if the numbers are clear. People tend to be more myopic than economic theory would suggest.
• Good strategy is design, and design is about fitting various pieces together so they work as a coherent whole.
• At the core, strategy is about focus, and most complex organizations don’t focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.”
• It is the leader’s job to identify which asymmetries are critical—which can be turned into important advantages.
• You must press where you have advantages and side-step situations in which you do not. You must exploit your rivals’ weaknesses and avoid leading with your own.
• When another person speaks you hear both less and more than they mean. Less because none of us can express the full extent of our understanding, and more because what another says is constantly mixing and interacting with your own knowledge and puzzlements.
• For Stewart Resnick, and now for me, a competitive advantage is interesting when one has insights into ways to increase its value. That means there must be things you can do, on your own, to increase its value.
• Start by defining advantage in terms of surplus—the gap between buyer value and cost. Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both.
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• To benefit from investments in improvement, the improvements must either be protected or embedded in a business that is sufficiently special that its methods are of little use to rivals.
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• Extending a competitive advantage requires looking away from products, buyers, and competitors and looking instead at the special skills and resources that underlie a competitive advantage. In other words, “Build on your strengths.”
• Extensions based on proprietary know-how benefit from the fact that knowledge is not “used up” when it is applied; it may even be enhanced. By contrast, extensions based on customer beliefs, such as brand names, relationships, and reputation, may be diluted or damaged by careless extension.
• An isolating mechanism inhibits competitors from duplicating your product or the resources underlying your competitive advantage. If you can create new isolating mechanisms, or strengthen existing ones, you can increase the value of the business.
• continuing streams of innovations in methods and products are more difficult to imitate when they are, themselves, based on streams of proprietary knowledge.
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• One way to find fresh undefended high ground is by creating it yourself through pure innovation.
• The other way to grab the high ground—the way that is my focus here—is to exploit a wave of change.
• An exogenous wave of change is like the wind in a racing boat’s sails. It provides raw, sometimes turbulent, power. A leader’s job is to provide the insight, skill, and inventiveness that can harness that power to a purpose.
• After a wave of change has passed, it is easy to mark its effects, but by then it is too late to take advantage of its surge or to escape its scour. Therefore, seek to perceive and deal with a wave of change in its early stages of development.
• Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work.
• a leader does not need to get it totally right—the organization’s strategy merely has to be more right than those of its rivals.
• The simplest form of transition is triggered by substantial increases in fixed costs, especially product development costs.
• Many major transitions are triggered by major changes in government policy, especially deregulation
• In seeing what is happening during a change it is helpful to understand that you will be surrounded by predictable biases in forecasting.
• A third common bias is that, in a time of transition, the standard advice offered by consultants and other analysts will be to adopt the strategies of those competitors that are currently the largest, the most profitable, or showing the largest rates of stock price appreciation.
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• An organization’s standard routines and methods act to preserve old ways of categorizing and processing information.
• Inertia by proxy disappears when the organization decides that adapting to changed circumstances is more important than hanging on to old profit streams.
• Entropy is a great boon to management and strategy consultants. Despite all the high-level concepts consultants advertise, the bread and butter of every consultant’s business is undoing entropy—cleaning up the debris and weeds that grow in every organizational garden.
• An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism
• A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.
• In the same way, a good business strategy deals with the edge between the known and the unknown. Again, it is competition with others that pushes us to edges of knowledge. Only there are found the opportunities to keep ahead of rivals. There is no avoiding it. That uneasy sense of ambiguity you feel is real. It is the scent of opportunity.
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• The problem with treating strategy as a crank-winding exercise is that systems of deduction and computation do not produce new interesting ideas, no matter how hard one winds the crank.
• The kernel is a list reminding us that a good strategy has, at a minimum, three essential components: a diagnosis of the situation, the choice of an overall guiding policy, and the design of coherent action.
• Overcoming quick closure is simple in principle: you look for additional insights and strategies. But, most of the time, when asked to generate more alternatives, people simply add one or two shallow alternatives to their initial insight. Consciously or unconsciously, they seem to resist developing several robust strategies.
• Social herding presses us to think that everything is OK (or not OK) because everyone else is saying so.
• The inside view presses us to ignore the lessons of other times and other places, believing that our company, our nation, our new venture, or our era is different.