(by Richard Rumelt; ISBN )
The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.
A Good Strategy identifies the one or two critical issues — and then focuses and concentrates action and resources on them. It doesn’t just draw on existing strength; it creates strength through the coherence of its design.
Core of strategy work: Discovering the critical factors in a situation and designing a way of coordination and focusing actions to deal with those factors.
Good strategy honestly acknowledges the challenges being faces and provides an approach to overcoming them.
Strategy selects the path, identifying how, why, and where determination and leadership are to be applied.
Strategy must include concrete actions (“Implementation”).
Goal setting != strategy.
Basic idea of strategy: apply strength to opportunity.
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. Unlike a stand-alone decision or a goal, a strategy is a coherent set of analyses/concepts/policies/arguments/actions that respond to a high-stakes challenge.
Sources of strength:
* Having a coherent strategy, one that creates strength.
* Subtle shifts in viewpoints.
A leader identifies the one or two critical issues in the situation — and then focuses and concentrates action and resources on them.
Good strategy almost always looks simple and obvious; doesn't require huge #s of Powerpoint slides to explain, and is not auto-generated from "strategic management" tools (matrix, chart, triangle, or fill-in-the-blanks).
A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. And the greater the challenge, the more a strategy focuses and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.
End result should be a strategy that is aimed at channelling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs.
The first natural advantage of good strategy arises because other organisations often don’t have one. And because they don’t expect you to have one. ... Instead, they have multiple goals and initiatives to symbolize progress, but no coherent approach to accomplish that progress other than "spend more and try harder".
Apple strategy: survive and wait for the next big thing. Succeed on that next thing.
Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organisation does not do as it is about what it does.
When there is a successful company, there is always failing competition. Learn from both. What the competition was not able to copy?
Wal-Mart: did not break conventional wisdom; it broke the definition of store.
US Department of Defense: From pure military capabilities to asymmetric cost on opponent.
Hallmarks of bad strategy:
True expertise is making a complex subject understandable.
If a challenge is not defined, it is impossible to assess the quality of the strategy.
Strategy work is episodic, not annual.
One of the challenges of being a leader is mastering the shift from having others define your goals to being the architect of the organization’s purpose and objectives.
Goal: overall values and desires.
Objective: specific operational target.
Strategy transforms goals into coherent actionable objectives.
Good strategy focuses on one or very few pivotal objectives.
Underperformance is not a challenge; is a result. The true challenges are the reasons for it.
Bad strategy is the active avoidance of the hard work of crafting a good strategy.
If you fail to identify and analyse the obstacles you don’t have a strategy. All you have is a stretch goal, a budget, or a list of things you wish would happen.
Dog’s Dinner Objectives: A long list of "things to do," often mislabeled as "strategies" or "objectives." These lists usually grow out of planning meetings in which stakeholders state what they would like to accomplish, then they throw these initiatives onto a long list called the "strategic plan" so that no one’s feelings get hurt, and they apply the label "long-term" so that none of them need be done today.
A lot of companies conflate OKRs (Objectives and Key Results) with strategy. OKRs shouldn't replace strategy work. The process typically looks like this:
* once a year, each department head is asked to come up with their own departmental OKRs, which are supposed to be connected to company goals (increase revenue, decrease costs, etc.).
* Then each department breaks down their OKRs into sub-OKRs for their teams to carry out,
* which are then broken down into sub-sub-OKRs for sub-teams and/or specific people,
* so on down the chain.
This process just perpetuates departmental silos and are rarely cohesive or mutually supportive of each other (if this does happen, it’s usually a happy accident). Department and team leaders often throw dependencies on other departments and teams, which causes extra work for teams that they often haven’t planned for and aren’t connected to their own OKRs, which drags down the efficiency and effectiveness of the entire organization. It’s easy for leaders to underestimate this drag since it’s hard to measure, and what isn’t measured isn’t managed.
Setting objectives is not the same as creating a strategy to reach those goals. You still need to do the hard strategy work of making a diagnosis of what obstacle is holding you back, creating a guiding policy for overcoming the obstacle, and breaking that down into coherent actions for the company to take (which shouldn’t be based on what departments or people or expertise you already have, but instead you should look at what competencies you need to carry out your strategy and then apply existing teams and people to carrying them out, if they exist, and hire where you’re missing expertise, and get rid of competencies that are no longer needed in the strategy). OKRs can be applied at the top layer as company goals to reach, then applied again to the coherent actions (i.e. what’s the objective of each action, and how will you know if you reached it?), and further broken down for teams and people as needed. You still need an actual strategy before you can set OKRs, but most companies conflate OKRs with strategy.
Blue Sky Objectives: A blue-sky objective is 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.
For example, "underperformance" isn’t a challenge, it’s a result. It’s a restatement of a goal. The true challenge are the reasons for the underperformance. Unless leadership offers a theory of why things haven’t worked in the past (a.k.a. a diagnosis), or why the challenge is difficult, it is hard to generate good strategy.
The Unwillingness or Inability to Choose: Any strategy that has universal buy-in signals the absence of choice. Because strategy focuses resources, energy, and attention on some objectives rather than others, a change in strategy will make some people worse off and there will be powerful forces opposed to almost any change in strategy (e.g. a department head who faces losing people, funding, headcount, support, etc., as a result of a change in strategy will most likely be opposed to the change). Therefore, strategy that has universal buy-in often indicates a leader who was unwilling to make a difficult choice as to the guiding policy and actions to take to overcome the obstacles.
This is true, but there are ways of mitigating this that he doesn’t discuss, which I talk about in the "Closing Thoughts" section below.
Template-style "strategic planning": Many strategies are developed by following a template of what a "strategy" should look like. Since strategy is somewhat nebulous, leaders are quick to adopt a template they can fill in since they have no other frame of reference for what goes into a strategy.
This template-style strategy skips over the hard work of identifying the key challenge to overcome, and setting out a guiding policy and actions to overcome the obstacle. It mistakes pious statements of the obvious as if they were decisive insights. The vision, mission, and goals are usually statements that no one would argue against, but that no one is inspired by, either.
New Thought: This is the belief that you only need to envision success to achieve it, and that thinking about failure will lead to failure. The problem with this belief is that strategy requires you to analyze the situation to understand the problem to be solved, as well as anticipating the actions/reactions of customers and competitors, which requires considering both positive and negative outcomes. Ignoring negative outcomes does not set you up for success or prepare you for the unthinkable to happen. It crowds out critical thinking.
Strategy is designing a way to deal with a challenge. A good strategy, therefore, must identify the challenge to be overcome, and design a way to overcome it. Good strategy has an essential logical structure called Kernel, that has:
Diagnosis: Simplifies reality by identifying the critical aspects. Leaders must absorb a large part of a situation/problem’s complexity and ambiguity and pass on to the organization a simpler problem, one that is solvable. Answers: “What is going on here?”. At minimum:
It defines a domain of action: If no action can be derived from it, the diagnosis is useless.
If a challenge is ill-structured, the diagnosis has to be an educated guess.
In business, most deep strategic changes are brought about by a change in diagnosis.
Guiding policy: Overall approach to cope or overcome the obstacles identified in the diagnosis. Drawn upon or creates sources of advantage. It channels action in certain direction without defining exactly what shall be done. Not goals or vision. In nonprofit and public policy, good strategy creates advantage by magnifying the effects of resources and actions.
A good guiding policy itself can be a source of advantage by: Anticipating actions of others. Reducing complexity and ambiguity. Concentrating effort on critical aspects. Create coherent actions.
Coherent action: Non conflicting and coordinated. Resource commitments. Coordination by itself can be a source of advantage.
Strategy is visible as coordinated action imposed on a system. Imposed = "exercise in centralized power used to overcome the natural workings of a system".
Strategic leverage arises from a mixture of:
* anticipation: buyer demand, competition reactions. 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 in change.
* pivot points: small adjustment magnifies effect of effort
* concentration: focus on a few objectives, due to limited resources, limited leadership cognition, perceived effectiveness (a 100% improvement in one department seems more effective than a 10% improvement in 100 departments)
To achieve leverage, you must have insight into a pivot point that with magnify the effects of focused energy and resources. 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.
Proximate objective: one that is close enough at hand to be feasible, guided by forecast of the future; the more uncertain the future, the more proximate objective must be.
How proximate an objective is depends on the skills and accumulated resources of the organization.
Strengthen the weakest link.
Quality matters when quantity is an inadequate substitute.
Find limiting factors.
Quality matching: when each link is managed separately, the system can get stuck in a low-effectiveness state:
* Quality of the chain is equal to the lowest link.
* Improving on any other link is a waste.
Problems with chain-linked:
* Identify bottlenecks.
* Incremental change may not pay off and even make things worse: Focus success measurement on change itself.
Excellence in a chain-linked system is difficult to replicate.
Strategy is not about choice/decision but about design, more constructed than chosen.
In design, issue of mutual adjustment: Sharp gain or cost on getting the combinations right or wrong.
Most of the work in system design is figuring out the interactions.
A design-type strategy is an adroit configuration of resources and actions that yields an advantage in a challenging situation.
Given a set bundle of resources, the greater the competitive challenge, the greater the need for the clever, tight integration of resources and actions.
Given a set level of challenge, higher-quality resources lessen the need for the tight integration of resources and actions.
Resources and tight coordination are partial substitutes for each other.
Tight integration cost:
* Harder to create.
* Narrower focus.
* More fragile.
* Less flexible to change.
Strategic resource is one that competitors cannot duplicate without suffering a net economic loss. High quality strategic resource yielding a powerful competitive advantage makes for great strategy simplicity (think useful patents). But it can impede innovation. Current profits are rarely associated with recent action, but with actions from the past.
Success leads to laxity and bloat, and these lead to decline.
Coordination of policies that produces extra power through their interacting and overlapping effects
Demands application of that power to the right target
At the core, strategy is about focus, and most complex organisations don’t focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.
Healthy growth is not engineered (ie through acquisition). It is the outcome of growing demand for special capabilities or of expanded or extended capabilities. It is the outcome of having superior products or skills.
An advantage is the result of differences – an asymmetry between rivals. Knowing your relative strengths and weaknesses, as well as the relative strengths and weaknesses of your competitors, can help you find an advantage. Strengths and weaknesses are "relative" because a strength you have in one context, or against one competitor, may be a weakness in another context, or against a different competitor. Press where you have advantage and side-step situations in which you do not. Exploit rivals’ weaknesses; avoid leading with your own.
The most basic advantage is producing at a lower cost than your competitors, or delivering more perceived value than your competitors, or a mix of the two. The difficult part is sustaining an advantage. To do that, you need an "isolating mechanism" that prevents competitors from duplicating it. Isolating mechanisms include patents, reputations, commercial and social relationships, network effects, dramatic economies of scale, and tacit knowledge and skill gained through experience.
Once you have an advantage, you should strengthen it by:
* deepening it
* broadening it
* creating higher demand for your products and services
* strengthening your isolating mechanisms
Dynamics are waves of change that roll through an industry. They are the net result of a myriad of shifts and advances in technology, cost, competition, politics, and buyer perceptions. Such waves of change are largely exogenous – that is, beyond the control of any one organization.
Most industries, most of the time, are fairly stable. When change occurs, understand the forces underlying the main effect to find out the second order effects. These second effects are the ones to focus on.
If you can see them coming, they are like an earthquake that creates new high ground and levels what had previously been high ground, leaving behind new sources of advantage for you to exploit. To discern a wave of change, you need to understand the gritty details well enough to question experts.
There are 5 guideposts to look out for:
Attractor states are especially interesting because he defines it as where an industry "should" end up in the light of technological forces and the structure of demand. By "should," he means to emphasize an evolution in the direction of efficiency – meeting the needs and demands of buyers as efficiently as possible. They’re different from corporate visions because the attractor state is based on overall efficiency rather than a single company’s desire to capture most of the pie. Attractor states are what pundits and industry analysts write about. There’s no guarantee, however, that the attractor state will ever come to pass. As it relates to strategy, you can anticipate most players to chase the attractor state. This leads many companies to waste resources chasing the wrong vision, and faltering as a result (e.g. Cisco rode the wave of "dumb pipes" and "IP everywhere" that AT&T and other telecom companies should have exploited). If you "zig" when other companies "zag", you can build yourself an advantage.
As a strategist, you should seek to do your own analysis of where an industry is going, and create a strategy based on that (rather than what pundits "predict" will happen). Combining your own proprietary knowledge of your customers, technology, and capabilities with industry trends can give you deeper insights that analysts on the outside can’t see. Taking that a step further, you should also look for second-order effects as a result of industry dynamics. For example, the rise of the microprocessor was predicted by many, and largely came true. But what most people didn’t predict was the second-order effect that commoditized microprocessors getting embedded in more products led to increased demand for software, making the ability to write good software a competitive advantage.
Entropy: weakly managed organizations tend to be less organized and focused.
Inertia: Even when change programs at full speed, it can take years to alter a large company.
(NVidia's strategy)
Good strategy
Intelligent anticipation
Guiding policy that reduces complexity
Power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by inertia and disarray of rivals
Change in viewpoint is important when creating strategy.
Most useful shift in viewpoint: thinking about your own thinking.
A new strategy is an hypothesis and its implementation an experiment.
Best knowledge to build good strategy is the one available only to your company.
If new insights or ideas are not needed, deduction is sufficient.
Strategy requires induction.
In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or to a customer. Advice to do this is both often given and taken. Yet the advice skips over what is possibly he most useful shift in viewpoint: thinking about your own thinking.
Make a short list of the most important and actionable. Things to do, not things to worry about.
It is unnatural, even painful, to question your own ideas.
Good strategy emphasize focus over compromise.
Judgment can be practiced: Write down before every meeting what issues will arise and who will take which positions.
Independent, not eccentric. Doubting without curmudgeon.
Errors in judgment:
* Engineering overreach: when failure modes and consequences are not understood.
* Smooth-sailing fallacy: when lack of recent failures make people overconfident.
* Working under risk-seeking malincentives: You profit if things go well, others pay if things go bad.
* Social herding.
* Inside view: believe “this case is different” despite data.
Think about first principles — not what is done but by WHY it’s done
Create-Destroy — try hard to destroy current alternative
Last modified 02 October 2024