An Annotated Reading of Good Strategy/Bad Strategy

Strategy: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.

Role of leadership: identifying the biggest challenges to forward progress; devising a coherent approach to overcoming them.

A good strategy honestly acknowledges the challenges being faced and provides and approach to overcoming them.

A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

Guiding policy is a signpost in reference to the diagnosis, shows the directional way forward.

Coherent actions are feasible coordinated policies, resource commitments and actions designed to carry out the guiding policy.

Can you identify what your competition is doing strategically that is valuable? From there can you devise a counter-strategic move that would increase your competitive position?

Most complex organizations spread rather than concentrate resources.

Good strategy itself is unexpected.

Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy.

Good strategy requires leaders who are wiling and able to say no to a wide variety of actions and interests.

Consider the competition even when no one tells you to do it in advance.

Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition.

Integrated design: each part of the design is shaped and specialized to the others. The pieces are not interchangeable parts.

When analyzing and developing strategy, consider what is the “basic unit of management”, such as the Wal-Mart example where the network is the basic unit of management.

The oft-forgotten cost of decentralization is lost coordination across units.

Where are you strong? How do you apply this to your competitors’ weakness?

Strategy: what stands in the way of your goals?

Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations.

Motivation in context: The job of the leader is also to create the conditions that will make that [one last] push effective.

Discover the most promising opportunities for the business: internal, fixing bottlenecks or constraints in the way people work; external, look very closely at what is changing in your business.

Business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.

To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them.

The cutting edge of any strategy is the set of strategic objectives (subgoals) it lays out.

Use the word “goal” to express overall values and desires and use the word “objective” to denote specific operational targets.

Strategize in steps: pick a “way forward” and then, as you make progress, new opportunities and challenges will present themselves.

If the leader’s strategic objectives are just as difficult to accomplish as the original challenge, there has been little value added by the strategy.

1.) Define the challenge; 2.) Explain why it exists.

Bad strategy is the active avoidance of the hard work of crafting a good strategy.

The value of debating a strategic thesis: disciplined conflict calls forth stronger evidence and reasoning.

Group irrationality is a central property of democratic voting; do not make decisions by democratic consensus.

The essential difficulty in creating strategy is not logical; it is choice itself. Strategy does not eliminate scarcity.

Universal buy-in usually signals the absence of choice.

Leadership inspires and motives self-sacrifice.

Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.

Ascribing the success of Ford and Apple to a vision, shared at all levels, rather than pockets of outstanding competence mixed with luck, is a radical distortion of history.

All strategic analysis starts with the consideration of what may happen, including unwelcome events.

A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.

A guiding policy is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

Coherent actions are steps that are coordinated with one another to work together in accomplishing the guiding policy.

In business, the challenge is usually dealing with change and competition. Before naming performance goals, diagnose the specific structure of the challenge. Then select a guiding policy that builds on or creates some type of leverage or advantage. Finally, design a configuration of actions and resource allocations that implement the guiding policy.

A strategic question of first importance: “What’s going on here?”

Defining the problem restricts the domain of the potential solution sets.

Diagnosis is a judgment about the meaning of facts.

Good guiding polices define a method of grappling with the situation and ruling out a vast array of possible actions.

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 cancelling one another out.

Seek simplicity for a strategic breakthrough.

Absent a good guiding policy, there is no principle of action to follow.

It is the hard craft of strategy to decide which priority shall take precedence; it requires letting go of optionality, perceived or otherwise.

Sometimes strategic solutions arrive in the form of shifting incentives to achieve cooperative goals.

A strategy coordinates action to address a specific challenge; unrelated operational actions may be good ideas but they’re not, therefore, “strategic”.

Strategic coordination is coherence imposed on a system by policy and design.

A powerful way to coordinate actions is by the specification of a proximate objective.

Decentralized decision-making cannot do everything. In particular, it may fail when either the costs or benefits of actions are not borne by the decentralized actors. The split may occur across organizational units or between the present and the future.

Coordinate in a few select, high leverage areas, otherwise decentralize.

Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behavior predictable.

When there are threshold effects, it is prudent to limit objectives to those that can be affected by the resources at the strategist’s disposal.

The more dynamic the situation, the poorer your foresight will be. The more uncertain and dynamic the situation, the more proximate a strategic objective must be.

To concentrate on an objective — to make it a priority — necessarily assumes that many other important things will be taken care of.

When there is a weak link, a chain is not made stronger by strengthening other links.

Resources and tight coordination are partial substitutes for each other.

Unless you can buy companies for less than they are worth, or unless you are specially positioned to add more value to the target than anyone else can, no value is created by acquisition.

Corporate leaders seek growth for many reasons. They may (erroneously) believe that administrative costs will fall with size. Also, leaders of larger firms tend to be paid more.

Healthy growth is not engineered. It normally shows up as a gain in market share that is simultaneous with a superior rate of profit.

Advantage is rooted in differences. No one has advantage in everything.

Think about where you don’t have an advantage; and where you are actively disadvantaged.

Most advantages will only extend so far.

An investment or a strategic position is “interesting” when there is a way to deepen the advantages it possesses.

Standardization and efficiency are not the same as innovativeness. One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing.

You can often benefit from putting corporate resources to use in other products or markets, but beware vaporous generalities such as believing that competitive strength lies in “transportation”, “branded consumer products” or “management.”

A brand’s value comes from guaranteeing certain characteristics of the product.

One way to grab the high ground is to exploit a wave of change.

You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground — become valuable and defensible — as the dynamics play out.

Most industries, most of the time, are fairly stable.

Historical perspective helps you make judgments about importance and significance.

The challenge is not forecasting but understanding the past and present.

When change occurs, most people focus on the main effects; you must dig beneath this surface reality to understand the forces underlying the main effect and develop a point of view about the second-order and derivative changes that have been set into motion.

To make good bets on how a wave of change will play out you must acquire enough expertise to question the experts.

To glimpse the future, consider what “area of excitement” currently exist in research-oriented institutions.

Sometimes restating a general question in specific terms can help clarify confusion and drive insight.

Increases in fixed costs often force industries to consolidate.

Regulated prices are almost always arranged to subsidize some buyers at the expense of sellers. Highly regulated companies do not know their own costs. When deregulation arrives, such companies can be expected to wind down some product lines that are actually profitable and continue to invest in some products and activities that offer no real returns.

Predictable biases in forecasting often exist. In durable products, there is an initial rapid expansion of sales when the product is first offered, but after a period of time everyone who is interested has acquired one, and sales can suffer a sharp drop. After that, sales track population growth and replacement demand.

Faced with a wave of change, the standard forecast will be for a “battle of the titans” however often it is a disruptive or new entrant who ends up taking the field.

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. They predict that the future winners will be, or will look like, the current apparent winners. This is naive extrapolation of trend.

We expect incumbent firms to resist a transition that threatens to undermine the complex skills and valuable positions they have accumulated over time.

Attractor state: how the industry “should” work in the light of technological forces and the structure of demand; an evolution in the direction of efficiency.

The critical distinction between an attractor state and many corporate “visions” is that the attractor state is based on overall efficiency rather than a single company’s desire to capture most of the pie. In effect, ask yourself, “What will eliminate cost and margin?”

An accelerant toward this state is the demonstration effect, the impact of in-your-face evidence on buyer perceptions and behavior.

Ways to overcome organizational inertia: hiring managers from firms using better methods, acquiring a firm with superior methods, using consultants, or simply redesigning the firm’s routines; it will probably be necessary to replace people and reorganize business units around new patterns of information flow.

Inertia by proxy: when streams of profit exist because of their customers’ inertia. Many “disruptive” businesses grow rapidly until their example excites the incumbent’s customers enough that the incumbent is forced to change their behavior to retain them, at which point the disruptor’s growth stops or reverses and the incumbent arises from its slumber.

Use a hump chart to figure out at what point your cumulative gain to operating begins to trail off.

Entropy: Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design. Without constant attention, the design decays.

If the design becomes obsolete, management’s job is to create a new way of coordinating efforts so that the competitive energy is directed outward instead of inward.

Growth is the outcome of a successful strategy.

Make a list of “things to do, now” rather than “things to worry about” forces us to resolve concerns into actions.

Being strategic is being less myopic.

In estimating the likelihood of an event, even experienced professionals exhibit predictable biases.

What the kernel does is remind us that a strategy is more than a localized insight; it leads from the facts on the ground to diagnosis, thence to an overall directive, thence to action.

Shift your attention from what is being done to why it is being done.

Don’t just go with your first strategic idea. Create a number of alternatives. A new alternative should flow from a reconsideration of the facts of the situation, and it should also address the weaknesses of any already developed alternatives. Try hard to “destroy” any existing alternatives, exposing their fault lines and internal contradictions.

Invoke a virtual panel of experts to judge and criticize your strategic ideas.

Good strategies are usually “corner solutions”, they emphasize focus over compromise, focusing on just one aspect of the situation that’s really critical.

Commit your judgments in writing to keep yourself honest and to have a record of your thought process and assumptions for later adjustment.

Choices, not products, have costs.