Good Strategy, Bad Strategy

A good strategy doesn't just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don't do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another.

INTRODUCTION

KEY TAKEAWAYS

When organizations are unable to make new strategies - when people evade the work of choosing among different paths into the future - then you get vague mom-and-apple-pie goals that everyone can agree on.

• Good strategy almost always looks this simple and obvious
• 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.
• bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values.
• Strategy cannot be a useful concept if it is a synonym for success. Nor can it be a useful tool if it is confused with ambition, determination, inspirational leadership, and innovation. Ambition is drive and zeal to excel. Determination is commitment and grit. Innovation is the discovery and engineering of new ways to do things. Inspirational leadership motivates people to sacrifice for their own and the common good. And strategy, responsive to innovation and ambition, selects the path, identifying how, why, and where leadership and determination are to be applied. A word that can mean anything has lost its bite. To give content to a concept one has to draw lines, marking off what it denotes and what it does not.
• A good strategy includes a set of coherent actions. They are not "implementation" details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.
• The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.
• A good strategy doesn't just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don't do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another.
• The creation of new strengths through subtle shifts in viewpoint. An insightful reframing of a competitive situation can create whole new patterns of advantage and weakness. The most powerful strategies arise from such game-changing insights.
• The first natural advantage of good strategy arises because other organizations often don't have one. And because they don't expect you to have one, either. A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end. Instead, they have multiple goals and initiatives that symbolize progress, but no coherent approach to accomplishing that progress other than "spend more and try harder.”
• What is remarkable about Jobs's turnaround strategy for Apple is how much it was "Business 101" and yet how much of it was unanticipated.
• Most complex organizations spread rather than concentrate resources [.] Thus, we are surprised when a complex organization [.] actually focuses its actions. Not because of secrecy, but because good strategy itself is unexpected.
• 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 organization does not do as it is about what it does.
• Wal-Mart's policies fit together-the bar codes, the integrated logistics, the frequent just in-time deliveries, the large stores with low inventory they are complements to one another, forming an integrated design. This whole design structure, policies, and actions is coherent. Each part of the design is shaped and specialized to the others. The pieces are not interchangeable parts.
• It isn't the store; it is the network of 150 stores. And the data flows and the management flows and a distribution hub. The network replaced the store. A regional network of 150 stores serves a population of millions! Walton didn't break the conventional wisdom; he broke the old definition of a store. Store locations express the economics of the network, not just the pull of demand. You also see the balance of power at Wal-Mart. The individual store has little negotiating power-its options are limited. Most crucially, the network, not the store, became Wal-Mart's basic unit of management.
• Bad strategy is not simply the absence of good strategy. It grows out of specific misconceptions and leadership dysfunctions. Once you develop the ability to detect bad strategy, you will dramatically improve your effectiveness at judging, influencing, and creating strategy. To detect a bad strategy, look for one or more of its four major hallmarks:
• Fluff. Fluff is a form of gibberish masquerading as strategic concepts or arguments.
• Failure to face the challenge. Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it.
• Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles.
• Bad strategic objectives. A strategic objective is set by a leader as a means to an end. Strategic objectives are "bad" when they fail to address critical issues or when they are impracticable.
• Bad strategy, I explained, is not the same thing as no strategy or strategy that fails rather than succeeds. Rather, it is an identifiable way of thinking and writing about strategy that has, unfortunately, been gaining ground. 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.
• 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.
• A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And if you cannot assess a strategy's quality, you cannot reject a bad strategy or improve a good one.
• […] did not suffer from a lack of motivation. They suffered from a lack of competent strategic leadership. 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.
• What I would advise is that you first work to discover the very most promising opportunities for the business. Those opportunities may be internal, fixing bottlenecks and constraints in the way people work, or external. To do this, you should probably pull together a small team of people and take a month to do a review of who your buyers are, who you compete with, and what opportunities exist. It's normally, a good idea to look very closely at what is changing in your business, where you might get a jump on the competition.
• business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.
• The leader's responsibility is to decide which of these pathways will be the most fruitful and design a way to marshal the organization's knowledge, resources, and energy to that end. Importantly, opportunities, challenges, and changes don't come along in nice annual packages.
• One of the challenges of being a leader is mastering this shift from having others define your goals to being the architect of the organization's purposes and objectives.
• To help clarify this distinction it is helpful to use the word "goal" to express overall values and desires and to use the word "objective" to denote specific operational targets. It is strategy which transforms these vague overall goals into a coherent set of actionable objectives. A leader's most important job is creating and constantly adjusting this strategic bridge between goals and objectives.
• 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.
• The purpose of good strategy is to offer a potentially achievable way of surmounting a key challenge. 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.
• Bad strategy flourishes because it floats above analysis, logic, and choice, held aloft by the hot hope that one can avoid dealing with these tricky fundamentals and the difficulties of mastering them. Not miscalculation, bad strategy is the active avoidance of the hard work of crafting a good strategy. One common reason for choosing avoidance is the pain or difficulty of choice. When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence. A second pathway to bad strategy is the siren song of template-style strategy filling in the blanks with vision, mission, values, and strategies. This path offers a one-size-fits-all substitute for the hard work of analysis and coordinated action.
• Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others.
• When a strategy works, we tend to remember what was accomplished, not the possibilities that were painfully set aside
• Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.
• All analysis starts with the consideration of what may happen, including unwelcome events.
• The kernel of a strategy contains three elements:
• A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.
• A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.
• A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.
• “What's going on here?" 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.
• You may correctly observe that many other people use the term "strategy" for what am calling the "guiding policy." I have found that defining a strategy as just a broad guiding policy is a mistake. Without a diagnosis, one cannot evaluate alternative guiding policies. Without working through to at least the first round of action one cannot be sure that the guiding policy can be implemented. 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.

"Without action, the world would still be an idea." - Doriot

• It is the hard craft of strategy to decide which priority shall take precedence. Only then can action be taken. And, interestingly, there is no greater tool for sharpening strategic ideas than the necessity to act.
• Indeed, we always hope that a brilliant insight or very clever design will allow us to accomplish several apparently conflicting objectives with a single stroke, and occasionally we are vouchsafed this kind of deliverance. Nevertheless, strategy is primarily about deciding what is truly important and focusing resources and action on that objective.
• A strategy coordinates action to address a specific challenge. Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design. More specifically, design is the engineering of fit among parts, specifying how actions and resources will be combined. Strategy is visible as coordinated action imposed on system. It is an exercise in centralized power, used to overcome the natural workings of system. This coordination is unnatural in the sense that it would not occur without the hand of strategy.
• A good strategy draws power from focusing minds, energy, and action. That focus, channeled at the right moment onto a pivotal objective, can produce a cascade of favorable outcomes. I call this source of power leverage. Finding such crucial pivot points and concentrating force on them is the secret of strategic leverage.
• 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.
• 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.
• 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 proximate objective is guided by forecasts of the future, but the more uncertain the future, the more its essential logic is that of "taking a strong position and creating options, not of looking far ahead.
• Herbert Goldhamer's description of play between two chess masters vividly describes this dynamic of taking positions, creating options, and building advantage:
• Two masters trying to defeat each other in a chess game are, during a large part of the game, likely to be making moves that have no immediate end other than to "improve my position." One does not win a chess game by always selecting moves that are directly aimed at trying to mate the opponent or even at trying to win a particular piece. For the most part, the aim of a move is to find positions for one's pieces that (a) increase their mobility, that is, increase the options open to them and decrease the freedom of operation of the opponent's pieces; and (b) impose certain relatively stable patterns on the board that induce enduring strength for oneself and enduring weakness for the opponent. If and when sufficient positional advantages have been accumulated, they generally can be cashed in with greater or less ease by tactical maneuvers (combinations) against specific targets that are no longer defensible or only at terrible cost.
• "To fly a helicopter you've got to constantly coordinate the controls: the collective, the cyclic, and the pedals, not to mention the throttle. It is not easy to learn, but you've got to get on top of it. You've got to make it automatic if you're going to do more than just take off and land. After you can fly, then you can learn to fly at night - but not before! After you can fly at night with ease, maybe then you're ready to learn to fly in formation, and then in combat."
• A system has a chain-link logic when its performance is limited by its weakest subunit, or "link." When there is a weak link, a chain is not made stronger by strengthening the other links.
• As an investor, one wants to find limiting factors that can be fixed, such as paint, rather than factors that cannot be fixed, such as highway noise. If you have a special skill or insight at removing limiting factors, then you can be very successful.
• three aspects of strategy: premeditation, the anticipation of others' behavior, and the purposeful design of coordinated actions.
• Premeditation […] it was designed and planned in advance.
• Anticipation - A fundamental ingredient in a strategy is a judgment or anticipation concerning the thoughts and/or behavior of others.
• The greater the challenge, or the higher the performance sought, the more interactions have to be considered.
• there is a sharp gain to careful coordination of the parts into a whole.
• I am describing a strategy as a design rather than as a plan or as a choice because I want to emphasize the issue of mutual adjustment. In design problems, where various elements must be arranged, adjusted, and coordinated, there can be sharply peaked gains to getting combinations right and sharp costs to getting them wrong. A good strategy coordinates policies across activities to focus the competitive punch.
• Most of the work in systems design is figuring out the interactions, or trade-offs, as they were called. Each part of the system had to be reconsidered and shaped to the needs of the rest of the system.
• A more tightly integrated design is harder to create, narrower in focus, more fragile in use, and less flexible in responding to change.
• Good strategy is design, and design is about fitting various pieces together so they work as a coherent whole.
• If you are serious about strategy work, you must always do your own analysis. A strategy is not necessarily what the CEO intended or what some executive says it is. Sometimes they are hiding the truth, sometimes they are misstating it, and sometimes they have taken position as leader without really knowing the reasons for their company's success.
• It wasn't a secret; it was just that it is hard work to fit the pieces together.
• Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities. It is the outcome of a firm having superior products and skills. It is the reward for successful innovation, cleverness, efficiency, and creativity.
• Two equally skillful chess players sit waiting for the game to begin which one has the advantage? Two identical armies meet on a featureless plain-which one has the advantage? The answers to these questions is "neither," because advantage is rooted in differences - in the asymmetries among rivals. It is the leader's job to identify which asymmetries are critical-which can be turned into important advantages.
• No one has an advantage at everything. [….] advantages in certain kinds of rivalry under particular conditions. The secret to using advantage is understanding this particularity. 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.
• For an advantage to be sustained, your competitors must not be able to duplicate it. Or, more precisely, they must not be able to duplicate the resources underlying it. For that you must possess what I term an "isolating mechanism," such as a patent giving its holder the legally enforceable right to monopolize the use of a technology for a time.
• "To me, a business is 'interesting when I can see ways to increase its value.”
• 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 value and cost. Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both.
• 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. This increased value will flow from lessened imitative competition and a consequent slower erosion of your resource values.
• 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. Such waves of change are largely exogenous they are mostly beyond the control of any one organization. No one person or organization creates these changes. They are the net result of a myriad of shifts and advances in technology, cost, competition, politics, and buyer perceptions.
• 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.
• weakly managed organizations tend to become less organized and focused. Entropy makes it necessary for leaders to constantly work on maintaining an organization's purpose, form, and methods even if there are no changes in strategy or competition.
• Organizational inertia generally falls into one of three categories: the inertia of routine, cultural inertia, and inertia by proxy.
• 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.
• […] design, of order imposed on chaos. Making such a policy work takes more than a plan on a piece of paper. 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.
• In the viewpoints of others, seeing how the situation looks to a rival or to a customer. advice skips over what is possibly the most useful shift in viewpoint: thinking about your own thinking.
• Good strategy is built on functional knowledge about what works, what doesn't, and why. An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism. Good strategy rests on a hard-won base of such knowledge, and any new strategy presents the opportunity to generate it. A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.
• 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.
• In a changing world, a good strategy must have an entrepreneurial component. That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities.
• An anomaly is a fact that doesn't fit received wisdom.
• One of the most important resources a business can have is valuable privileged information that is, knowing something that others do not. All alert businesspeople can know more about their own customers, their own products, and their own production technology than anyone else in the world. Thus, once Schultz initiated business operations, he began to accumulate privileged information.
• […] The whole interview lasts about three hours. When it is done, Fletcher stands and shakes my hand. "I didn't know what to expect," he says. "But that was the most useful conversation I've had all year." All I had done was ask the obvious questions about strategy and write down his answers.
• "Young man," said Carnegie, squinting dubiously at the consultant, "if you tell me something about management that is worth hearing, I will send you a check for ten thousand dollars." Now, ten thousand dollars was a great deal of money in 1890. Conversation stopped as the people nearby turned to hear what Taylor would say. "Mr. Carnegie,' Taylor said, "I would advise you to make a list of the ten most important things you can do. And then, start doing number one.' And, the story goes, a week later Taylor received a check for ten thousand dollars.
• I saw that there was a deeper truth in the story. Carnegie's benefit was not from the list itself. It came from actually constructing the list. The idea that people have goals and automatically chase after them like some kind of homing missile is plain wrong. The human mind is finite, its cognitive resources limited. Attention, like a flashlight beam, illuminates one subject only to darken another. When we attend to one set of issues, we lose sight of another.
• Taylor's assignment was to think through the intersection between what was important and what was actionable. Carnegie paid because Taylor's list-making exercise forced him to reflect upon his more fundamental purposes and, in turn, to devise ways of advancing them.
• Most people, most of the time, solve problems by grabbing the first solution that pops into their heads---the first insight.
• This personal skill is more important than any one so-called strategy concept, tool, matrix, or analytical framework. It is the ability to think about your own thinking, to make judgments about your own judgments
• I almost always back up and try to create a better diagnosis of the situation before getting into recommendations.
• Jobs's basic operating principles have become the stuff of legend: (1) imagine a product that is "insanely great," (2) assemble a small team of the very best engineers and designers in the world, (3) make the product visually stunning and easy to use, pouring innovation into the user interface, (4) tell the world how cool and trendy the product is with innovative advertising.
• good strategies are usually "corner solutions." That is, they emphasize focus over compromise. They focus on one aspect of the situation, not trying to be all things to all people.
• Good judgment is hard to define and harder still to acquire. Certainly some part of good judgment seems to be innate, connected with having a balanced character and an understanding of other people.
• Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insights.
• For centuries, mathematicians believed that within any axiomatic system--such as geometry, arithmetic, or algebra every statement was either true or false. […] sufficiently complex logical systems are "incomplete." That is, they contain statements and propositions that cannot be judged true or false within the logic of the system. To judge their truth one must look beyond the system to outside knowledge.

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