Good strategy and bad strategy

The word “strategy” comes to us from military affairs. Unfortunately, humans have put more effort, over more time, into thinking about war than any other subject. Armies and the authority structures supporting them first arose in the Bronze Age in parallel with complex urban societies. They found that organising and coordinating the actions of fighters greatly magnified their effect. Properly organised and led, ordinary men could defeat skilled warriors who fought as individuals or as small bands.

Good Strategy/Bad Strategy

I love strategy. The book “Good Strategy/Bad Strategy: The difference and why it matters” is often mentioned, so I decided to give it a whack. I am glad I did. Richard Rumelt has a refreshing take on strategy and, more important, what is not a strategy. There is an enormous amount of BS and a glib approach to strategy. Strategy is about discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.

Many things are not a strategy

Announcing ambitious revenue or profit goal is not a strategy. Indulging in messianic visions of the future is not a strategy. Ambition is not a strategy. Motivation is not a strategy. Stating an intent is not a strategy. Setting goals is not a strategy. Concepts are not a strategy. Delegation is not a strategy. Strategy is not a slogan. Innovation is not a strategy. Blue sky thinking is not a strategy. Community involvement is not a strategy. A positive mental attitude is not a strategy. Hope is not a strategy. Strategy is not the purpose, the vision, the guiding principles, or the values (all elements of my strategic box). 

Leadership is not a strategy

Leadership is not a strategy. We need to realise that we must of us are not Moses, Churchill, Gandhi, Martin Luther King Jr., Steve Jobs, Richard Branson or Elon Musk. Charisma is not a strategy. Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.

Good strategy

A good strategy does more than urge us forward toward a goal or vision. A good strategy acknowledges the challenges and provides an approach to overcoming them. A good strategy defines a critical challenge. Strategy selects the path, identifying how, why, and where leadership and determination are to be applied. A good strategy is like a lever that magnifies force.

Strategy is execution

Strategy is execution, focus, making choices, and allocating resources. Strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge. A good strategy includes a set of coherent actions.

Strategy is analysis

A good strategy is about analysis. Strategy is about how an organisation will move forward. Doing strategy is figuring out how to advance the organisation’s interests. It addresses the fundamental problem with a focused and coordinated set of actions. Strategy focuses on the sources of and barriers to success in his industry—recognising the next window of opportunity, the next set of forces to be harnessed to your advantage and then having the quickness and cleverness to pounce on it quickly like a perfect predator. 

Strategy is achieving a favourable outcome 

The purpose of a 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. A good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. A number of fundamental sources of power used in good strategies: leverage, proximate objectives, chain-link systems, design, focus, growth, advantage, dynamics, inertia, and entropy. A good strategy draws power from focusing minds, energy, and action. That focus, channelled at the right moment onto a pivotal objective, can produce a cascade of favourable outcomes. Good strategy coordinates policies across activities to focus the competitive punch. A good strategy is built on functional knowledge about what works, what doesn’t, and why.

Strategy is coherence

Strategy transforms vague overall goals into a coherent set of actionable objectives. 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. A good strategy is the concentration of resources. Strategy is resource planning. Any coherent strategy pushes resources toward some ends and away from others. 

Diagnosis, policy and action

Strategies focus resources, energy, and attention on some objectives rather than others. Unless collective ruin is imminent, a change in strategy will make some people worse off. Hence, there will be powerful forces opposed to almost any change in strategy. The kernel of a strategy contains three elements: 

1. A diagnosis that defines or explains the nature of the challenge.
2. A guiding policy for dealing with the challenge.
3. A set of coherent actions designed to carry out the guiding policy.

Diagnosis

A diagnosis had to be an educated guess as to what was going on in the situation, especially about what was critically important. The diagnosis for the situation should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects. Furthermore, a good strategic diagnosis does more than explain a situation—it also defines a domain of action. A diagnosis is generally denoted by metaphor, analogy, or reference to a diagnosis or framework that has already gained acceptance. In business, most deep strategic changes are brought about by a change in diagnosis—a change in the definition of the company’s situation.

Guiding policy

Defining a strategy as just a broad guiding policy is a mistake. Without a diagnosis, one cannot evaluate alternative guiding policies. The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. It is “guiding” because it channels action in certain directions without defining exactly what should be done. Like the guardrails on a highway, the guiding policy directs and constrains action without fully defining its content.

Action

Strategy is about action, about doing something. A strategy must contain action. Without action, the world would still be an idea. The imperative of action forces a decision about which issue is actually the most important. The actions within the kernel of strategy should be coherent. The resource deployments, policies, and manoeuvres should be consistent and coordinated. Strategy is visible as coordinated action imposed on a system. It is an exercise in centralised power used to overcome the natural workings of a system.

Strategy is predicting the future

Good business strategy deals with the edge between the known and the unknown. We test a new strategic insight against well-established principles and against our accumulated knowledge about the business. A good strategy is, in the end, a hypothesis about what will work. A strategy is, like a scientific hypothesis, an educated prediction of how the world works.

Behaviour

A fundamental ingredient in a strategy is a judgment or anticipation concerning the thoughts and/or behaviour of others. The strategist may have insight into predictable aspects of others’ behaviour that can be turned to advantage. In competitive strategy, the key anticipations are often of buyer demand and competitive reactions. The most critical anticipations are about the behaviour of others, especially rivals.

Hard and soft trends

Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, predictable economic or social dynamics, or the routines other agents follow that make aspects of their behaviour predictable. Certain aspects of future events are predetermined. Read Daniel Burrus. 

Scenario planning

If you do standard “scenario” forecasting, you wind up with a graph with three lines labelled “high,” “medium,” and “low.” Everyone looks at it and believes that they have paid attention to the uncertainty. Then, of course, they plan on “medium”! But they are missing the risk. The risk is not that the price of oil may be high or may be low. Everything could be a black swan. Read “Imaginable“. 

Do your homework

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 on change. Set up your information dashboard. Become a perception pioneer.

Bad strategy

Unfortunately, according to the book, a good strategy is the exception, not the rule. Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Bad strategy has a life and logic of its own, a false edifice built on mistaken foundations. Many companies, especially large complex companies, don’t really have strategies. At the core, strategy is about focus, and most complex organisations don’t focus their resources.

What is bad strategy?

Bad strategy has conflicting goals, dedicates resources to unconnected targets, and accommodates conflicting interests. Bad strategy is long on goals and short on policy or action. Bad strategy generates a feeling of dull annoyance when you have to listen to it or read it. Bad strategy is the active avoidance of the hard work of crafting a good strategy. Bad strategy is the pain avoidance of making choices. Bad strategy is the siren song of template-style strategy—filling in the blanks with vision, mission, values, and strategies. Bad strategy is consensus and politics. 

Four characteristics 

Bad strategy has four major features:

1. Fluff. Fluff is a form of gibberish masquerading as strategic concepts or arguments. Fluff is a superficial restatement of the obvious combined with a generous sprinkling of buzzwords.
2. Failure to face the challenge. Bad strategy fails to recognise or define the challenge.
3. Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles.
4. 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.

Examples

The book uses a broad set of examples to illustrate good and bad strategies. Apple, operation Dessert Storm, Walmart, DARPA, education institutes, GE, Starbucks, IBM, 7-eleven, the war on drugs, IKEA, Hannibal, JPL, Xerox, Paccar, Crown, eBay, Disney, Cisco, AT&T and Nvidia

Some of the lessons

• Looking just at the actions of a winning firm, you see only part of the picture. Whenever an organisation succeeds greatly, there is also, at the same time, either blocked or failed competition.
• Advantage must stem from something that competitors cannot easily copy or do not copy because of inertia and incompetence.
• If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy.
• Having a truly competitive strategy means engaging in actions that impose exorbitant costs on the other side.
• You should be open to things, so as many useful bits of information are on the table as possible.
• The doctrine that one can impose one’s visions and desires on the world by the force of thought alone retains a powerful appeal to many people. Its acceptance displaces critical thinking and good strategy.
• The brilliance of a good organisation is not in making sure that everything is connected to everything else. Down that road lies a frozen maladaptive stasis. Good strategy and good organisation lie in specialising in the right activities and imposing only the essential amount of coordination.
• A good strategy works by harnessing power and applying it where it will have the greatest effect.
• Returns to concentration arise when focusing efforts on fewer or more limited objectives generate larger payoffs. A “threshold effect” exists when there is a critical level of effort necessary to affect the system.
• The power of concentration is choosing an objective that can be decisively affected by the resources at hand.
• Since Kennedy’s time, there has been an increased penchant for defining goals that no one really knows how to achieve and pretending that they are feasible.
• An important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organisation a simpler problem—one that is solvable. That is sense-making.
• 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.
• For the most part, a move aims 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.
• In organisations of any size, high-level proximate objectives create goals for lower-level units, which, in turn, create their own proximate objectives, and so on, in a cascade of problem-solving at finer and finer levels of detail.
• Every 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. The first logical problem in chain-link situations is to identify the bottlenecks. The second and greatest problem is that incremental change may not pay off and may even make things worse.
• In any organisation, there is always a managed tension between the need for decentralised autonomous action and the need for centralised direction and coordination.
• A strategic resource is a kind of property that is fairly long-lasting that, has been constructed, developed over time, designed, or discovered by a company and that competitors cannot duplicate without suffering a net economic loss.
• Existing resources can be the lever for the creation of new resources, but they can also be an impediment to innovation.
• The problem with engineering growth by acquisition is that when you buy a company, especially a public company, you usually pay too much.
• 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.
• Increasing value requires a strategy for progress on at least one of four different fronts: • deepening advantages, • broadening the extent of advantages, • creating higher demand for advantaged products or services, or • strengthening the isolating mechanisms that block easy replication and imitation by competitors.
• A good product-market strategy is useless if important competencies assumed present are absent, and their development is blocked by long-established culture.
• The first step in breaking organisational culture inertia is simplification. After the first round of simplification, it may be necessary to fragment the operating units. After this round of fragmentation and more simplification, it is necessary to perform triage. Some units will be closed, some will be repaired, and some will form the nuclei of a new structure.
• Entropy is a great boon to management and strategy consultants. Iy the bread and butter of every consultant’s business is undoing entropy—cleaning up the debris and weeds that grow in every organisational garden.

Strategy is about creating advantages

The first natural advantage of a good strategy arises because other organisations often don’t have one. The second natural advantage of many good strategies comes from insight into new sources of strength and weakness. If your business can produce at a lower cost than can competitors, or if it can deliver, then you have a competitive advantage. 

Sustainable advantage

Defining “sustainability” is trickier. For an advantage to be sustained, your competitors must not be able to duplicate it. More complex forms of isolating mechanisms include reputations, commercial and social relationships, network effects, dramatic economies of scale, and tacit knowledge and skill gained through experience.

Create high ground

In classical military strategy, the defender prefers the high ground. It is harder to attack and easier to defend. The high ground constitutes a natural asymmetry that can form the basis of an advantage. One way to find fresh undefended high ground is by creating it yourself through pure innovation.

Catch the wave

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 organisation. Important waves of change are like an earthquake, creating new high ground and levelling what had been high ground. An exogenous wave of change is like the wind in a racing boat’s sails. It provides raw, sometimes turbulent, power. To make good bets on how a wave of change will play out, you must acquire enough expertise to question the experts. There is no simple theory or framework for analysing waves of change. 

Indicators of transition

Guidepost 1: The simplest form of transition is triggered by substantial increases in fixed costs, especially product development costs.

Guidepost 2: Many major transitions are triggered by major changes in government policy, especially deregulation.

Guidepost 3: In seeing what is happening during a change, it is helpful to understand that you will be surrounded by predictable biases in forecasting.

Guidepost 4: The importance of understanding the structure of incumbent responses to a wave of change.

Guidepost 5: An industry attractor state describes how the industry “should” work in the light of technological forces and the structure of demand. An attractor state provides a sense of direction for the future evolution of an industry.

Nvidia

Follow the story of Nvidia, and you will clearly see the kernel of a good strategy at work: diagnosis, guiding policy, and coherent action. You will also glimpse almost every building block of good strategy: intelligent anticipation, a guiding policy that reduces complexity, the power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by the inertia and disarray of rivals.

Tips

The book ends with some tips

• Have a variety of tools for fighting your myopia and for guiding your attention.
• Develop the ability to question your judgment.
• Cultivate the habit of making and recording judgments so that you can improve.
• Rely on outside help—the author invokes a virtual panel of experts that he carries around in his mind. This panel of experts is a collection of people whose judgments he values. Read Jack Black.
• Practice judgement
• Be aware of your biases. 
• Apply the five forces analysis
• Pay attention to real-world data that refutes the echo-chamber chanting of the crowd.
• Learn the lessons taught by history and by other people in other places.

It is funny. I have read many books (and written a few https://www.ronimmink.com/books/) about strategy. Here are some of the blogs:

• https://www.ronimmink.com/strategy-is-about-creating-corporate-memories-of-the-future/
• https://www.ronimmink.com/strategy-vuca-movement-and-you/
• https://www.ronimmink.com/simplifying-as-the-essence-of-strategy/
• https://www.ronimmink.com/strategising-chaos/
• https://www.ronimmink.com/leadership-is-about-predicting-the-future/
• https://www.ronimmink.com/29-tips-to-manage-change-survive-and-thrive/

Good strategy/bad strategy touches on all the aspects in the above books but takes an entirely different angle. It reminds me of playing chess. And ultimately, my conclusion is that strategy, after you have done a good analysis, finally comes down to 100-day plans. Super simple, super focussed and entirely action-oriented. Read “What can you achieve in a 100 days?”