(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.

Introduction: Overwhelming obstacles

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.

Part 1: Good and bad 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.

Chapter 1 - Good strategy is unexpected

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.

Chapter 2 - Discovering power

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.

Chapter 3 - Bad strategy

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.

Chapter 4 - Why so much bad strategy?

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.

Some Forms of Bad Strategy

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.

Chapter 5 - The Kernel of good strategy

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:

Strategy is visible as coordinated action imposed on a system. Imposed = "exercise in centralized power used to overcome the natural workings of a system".

Part 2: Sources of power

Chapter 6 - Using leverage

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.

Chapter 7 - Proximate objectives

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.

Chapter 8 - Chain-link systems.

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.

Chapter 9 - Using Design

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.

Chapter 10 - Focus

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.

Chapter 11 - Growth

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.

Chapter 12 - Using advantage

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

Chapter 13 - Using dynamics

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:

  1. Rising fixed costs
  2. Deregulation
  3. Predictable Biases
    • Ignore the fact that all business trends peak and then decline.
    • Market leaders will duke it out for supremacy.
    • The future winners will be the current apparent winners.
  4. Incumbent Response
  5. Attractor States (i.e. where an industry "should" go).

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.

Chapter 14 - Inertia and entropy

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.

Chapter 15 - Putting it together

(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

Part 3 - Thinking like a strategist

Change in viewpoint is important when creating strategy.

Most useful shift in viewpoint: thinking about your own thinking.

Chapter 16 - The science of strategy

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.

Chapter 17 - Using your head

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.

Chapter 18 - Keeping your head

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.

Improve on strategy

  1. Have tools to fight myopia and guide attention
  2. Question your own judgement
  3. Record judgements so you can learn from them

Tools to help thinking

Think about first principles — not what is done but by WHY it’s done
Create-Destroy — try hard to destroy current alternative

Tags: reading   thinking   business   management  

Last modified 06 April 2022