Good Strategy/Bad Strategy

Despite the roar of voices wanting to equate strategy with ambition, leadership, “vision,” planning, or the economic logic of competition, strategy is none of these. 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.

Simply being ambitious is not a strategy.

A good strategy does more than urge us forward toward a goal or vision. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.

Strategy is about how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests.

A good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.

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.

use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.

Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles.

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.

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

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.

Being a general manager, CEO, president, or other top-level leader means having more power and being less constrained. Effective senior leaders don’t chase arbitrary goals. Rather, they decide which general goals should be pursued. And they design the subgoals that various pieces of the organization work toward. Indeed, the cutting edge of any strategy is the set of strategic objectives (subgoals) it lays out. 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.

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.

When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence.

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. Apple did not invent the personal computer—the technology was in the air and hundreds of entrepreneurs sought to design and build “computers for everyman.” Apple’s success derived, in large measure, from Steve Wozniak’s ability to cleverly trick the Motorola microprocessor at the center of the Apple II into directly driving the video and a floppy disk—using straight outputs from the CPU—rather than building expensive controllers. And, from the advent of VisiCalc, which gave people other than hobbyists a reason to buy an Apple II.

The kernel of a strategy contains three elements: 1. 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. 2. 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. 3. 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.

Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it.

Here, as in so many situations, the required actions were not mysterious. The impediment was the hope that the pain of those actions could, somehow, be avoided. 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. It is a hard discipline because focusing on one thing slights another.

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 between the costs and benefits may occur across organizational units or between the present and the future. And decentralized coordination is difficult when benefits

An important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organization a simpler problem—one that is solvable.

What one single feasible objective, when accomplished, would make the biggest difference?

In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination.

performance is the joint outcome of capability and clever design.

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. When the profits roll in, leaders will point to their every action with pride. Books will be written recommending that others immediately adopt the successful firm’s dress code, its vacation policy, its suggestion-box policies, and its method of allocating parking spaces. Of course, these connections are specious. Were there such simple, direct connections between current actions and current results, strategy would be a lot easier.

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.

Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both.*

As Frank Gilbreth pointed out in 1909, bricklayers had been laying bricks for thousands of years with essentially no improvement in tools and technique.5 By carefully studying the process, Gilbreth was able to more than double productivity without increasing anyone’s workload. By moving the supply pallets of bricks and mortar to chest height, hundreds or thousands of separate lifting movements per day by each bricklayer were avoided. By using a movable scaffold, skilled masons did not have to waste time carrying bricks up ladders. By making sure that mortar was the right consistency, masons could set and level a brick with a simple press of the hand instead of the time-honored multiple taps with a trowel.

Extending an existing competitive advantage brings it into new fields and new competitions.

We use the word “culture” to mark the elements of social behavior and meaning that are stable and strongly resist change.

“grow by 50 percent” is classic bad strategy. It is the kind of nonsense that passes for strategy in too many companies. First, he was setting a goal, not designing a way to deal with his company’s challenge. Second, growth is the outcome of a successful strategy, and attempts to engineer growth are exercises in magical thinking.

good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment. And there isn’t anyone more educated about your businesses than the group in this room.

Arabs began to brew coffee six hundred years ago, and the first European coffee shop opened its doors in Oxford, England, in 1652 when Isaac Newton was ten years old. The cause of the Enlightenment may have been the Copernican revolution and the Protestant Reformation, but coffee was its daily fuel.

Integration is not always a good idea. When a company can buy perfectly good products and services from outside suppliers, it is usually wasteful to go through the expense and trouble of mastering a new set of business operations. However, when the core of a business strategy requires the mutual adjustment of multiple elements, and especially when there is important learning to be captured about interactions across business elements, then it may be vital to own and control these elements of the business mix.

It was 1890, and there was a cocktail party here in Pittsburgh. All the movers and shakers were there, including Carnegie. He held court in a corner of the room, smoking a cigar. He was introduced to Frederick Taylor, the man who was becoming famous as an expert on organizing work. “Young man,” said Carnegie, squinting dubiously at the consultant, “if you can 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.

Making a list is a basic tool for overcoming our own cognitive limitations. The list itself counters forgetfulness. The act of making a list forces us to reflect on the relative urgency and importance of issues. And making a list of “things to do, now” rather than “things to worry about” forces us to resolve concerns into actions.

To guide your own thinking in strategy work, you must cultivate three essential skills or habits. First, you must have a variety of tools for fighting your own myopia and for guiding your own attention. Second, you must develop the ability to question your own judgment. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition. Third, you must cultivate the habit of making and recording judgments so that you can improve.

The same principle applies to any meeting you attend. What issues do you expect to arise in the meeting? Who will take which position? Privately commit yourself in advance to some judgments about these issues, and you will have daily opportunities to learn, improve, and recalibrate your judgment.

Being independent without being eccentric and doubting without being a curmudgeon are some of the most difficult things a person can do.

The introductory topic taught in any modern course on business strategy is the connection between industry structure and profit. This topic is usually called the “Five Forces,” following Michael Porter’s pioneering analysis of industry structure, published in 1980. A quick summary is that a terrible industry looks like this: the product is an undifferentiated commodity; everyone has the same costs and access to the same technology; and buyers are price sensitive, knowledgeable, and willing to switch suppliers at a moment’s notice to get a better deal.

The original Jeffersonian ideal was a nation of citizen farmers, each owning the means of his or her own support. Today, this vision has morphed into one of a nation of homeowners, each working 100 days a year to pay their taxes and another 125 days a year to pay their mortgages.