Highlights for Good Strategy Bad Strategy

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.

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. Like

To make matters worse, for many people in business, education, and government, the word “strategy” has become a verbal tic.

A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design.

An insightful reframing of a competitive situation can create whole new patterns of advantage and weakness.

A large organization may balk at adopting a new technique, but such change is manageable. But breaking with doctrine—with one’s basic philosophy—is rare absent a near-death experience.

To detect a bad strategy, look for one or more of its four major hallmarks:

  • Fluff.
  • Failure to face the challenge.
  • Mistaking goals for strategy.
  • Bad strategic objectives.

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.

If you continue down the road you are on you will be counting on motivation to move the company forward. I cannot honestly recommend that as a way forward because business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.

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.

A long list of “things to do,” often mislabeled as “strategies” or “objectives,” is not a strategy. It is just a list of things to do.

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.

When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance.

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.

Only the prospect of choice inspires peoples’ best arguments about the pluses of their own proposals and the negatives of others’.

So they avoided the hard work of choice, set nothing aside, hurt no interest groups or individual egos, but crippled the whole.

Serious strategy work in an already successful organization may not take place until the wolf is at the door—or even until the wolf’s claws actually scratch on the floor—because good strategy is very hard work.

Strategy does not eliminate scarcity and its consequence—the necessity of choice. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others.

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. This is the fate of many strategy initiatives in large organizations. There may be talk about focusing on this or pushing on that, but at the end of the day no one wants to change what they are doing very much.

The transformational leader, they argued, unlocks human energy by creating a vision of a different reality and connecting that vision to people’s values and needs.

Called the New Thought movement, it combined religious sentiment with recommendations for worldly success. The theory was that thinking about success leads to success. And that thinking about failure leads to failure.

Nevertheless, 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 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.

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.

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. Many leaders fail badly at this responsibility, announcing ambitious goals without resolving a good chunk of ambiguity about the specific obstacles to be overcome. To take responsibility is more than a willingness to accept the blame. It is setting proximate objectives and handing the organization a problem it can actually solve.

When someone says “Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer.

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.

Existing resources can be the lever for the creation of new resources, but they can also be an impediment to innovation.

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. It would also be a lot less interesting, for it is the disconnect between current results and current action that makes the analysis of the sources of success so hard and, ultimately, so rewarding.

 

The proposition that growth itself creates value is so deeply entrenched in the rhetoric of business that it has become an article of almost unquestioned faith that growth is a good thing.

No one has an advantage at everything. Teams, organizations, and even nations have 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.

The forces at work were not only altering the fortunes of companies, they were shifting the very wealth of nations.

To make good bets on how a wave of change will play out you must acquire enough expertise to question the experts.

Leaders who stay “above the details” may do well in stable times, but riding a wave of change requires an intimate feel for its origins and dynamics.

Thus, software’s advantage comes from the rapidity of the software development cycle—the process of moving from concept to prototype and the process of finding and correcting errors.

What is actually surprising about the modern computer industry is not the network of relationships but the absence of the massively integrated firm doing all the systems engineering—all of the coordination—internally. The current web of “relationships” is the ghostly remnant of the old IBM’s nerve, muscle, and bone.

During the relatively stable periods between episodic transitions, it is difficult for followers to catch the leader, just as it is difficult for one of the two or three leaders to pull far ahead of the others. But in moments of transition, the old pecking order of competitors may be upset and a new order becomes possible.

The simplest form of transition is triggered by substantial increases in fixed costs, especially product development costs. This increase may force the industry to consolidate because only the largest competitors can cover these fixed charges.

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

A third common bias is that, in a time of transition, the standard advice offered by consultants and other analysts will be to adopt the strategies of those competitors that are currently the largest, the most profitable, or showing the largest rates of stock price appreciation.

Another bias is that, faced with a wave of change, the standard forecast will be for a “battle of the titans.”

For instance, people rarely predict that a business or economic trend will peak and then decline. If sales of a product are growing rapidly, the forecast will be for continued growth, with the rate of growth gradually declining to “normal” levels. Such a prediction may be valid for a frequently purchased product, but it can be far off for a durable good.

An industry attractor state describes how the industry “should” work in the light of technological forces and the structure of demand. By saying “should,” I mean to emphasize an evolution in the direction of efficiency—meeting the needs and demands of buyers as efficiently as possible.

Inertia due to obsolete or inappropriate routines can be fixed. The barriers are the perceptions of top management.

Chief scientist David Kirk put it this way: “There is a virtually limitless demand for computational power in 3-D graphics. Given the architecture of the PC, there is only so much you can do with a more powerful CPU. But it is easy to use up one tera-flop of graphics computing power. The GPU [graphics processing unit] is going to be the center of technology and value added in consumer computing.”

The benefit of a faster cycle is that the product will be best in class more often. Compared to a competitor working on an eighteen-month cycle, Nvidia’s six-month cycle would mean that its chip would be the better product about 83 percent of the time. Plus, there is the constant buzz surrounding new product introductions, a substitute for expensive advertising. As a further plus, the faster company’s engineers will get more experience and, perhaps, learn more about the tricks of turning the technology into product.

Whenever a company succeeds greatly there is a complementary story of impeded competitive response. Sometimes the impediment is the innovator’s patent or similar protection, but more often it is an unwillingness or inability to replicate the innovator’s policies.

A surface reading of history makes it look like 3dfx did itself in with too many changes of direction. The deeper reality was that Nvidia’s carefully crafted fast-release cycle induced 3dfx’s less coordinated responses.

To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight.

In praising America’s “deep and liquid” financial markets, the herd conveniently skipped over the giant bag of flammable gas keeping those markets buzzing—easy credit, overleveraging, a vast expanse of unpriceable derivative securities, long-term assets financed with overnight borrowing from trigger-happy counterparties, and huge top management bonuses for taking on hidden risks.

Although there were some voices cautioning that these new financial vehicles were new and untested, the dominant position was that the economy was growing and the finance industry was prospering, hence these new financial innovations must be doing something beneficial.

Social herding presses us to think that everything is OK (or not OK) because everyone else is saying so. The inside view presses us to ignore the lessons of other times and other places, believing that our company, our nation, our new venture, or our era is different. It is important to push back against these biases. You can do this by paying attention to real-world data that refutes the echo-chamber chanting of the crowd—and by learning the lessons taught by history and by other people in other places.

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