Chain-Link Systems

If a chain must not fail, there is not point in strengthening only some of the links.

A system has a chain-link logic when its performance is limited by its weakest sub unit, or "link."  Where there is a weak link, a chain is not made stronger by strengthening the other links. 

For the space shuttle Challenger, the weakest link was a solid rubber O-ring.   On January 28, 1986, the O-ring in Challenger's booster engine failed.  Hot gas knifed through the structure; the rocket exploded.  Challenger and its crew, the "pride of our nation" President Reagan called them, tumbled out of the clear blue sky and shattered on the ocean sixty-five thousand feet below.

If a chain must not fail, there is not point in strengthening only some of the links.  Similarly, for Challenger, there could be no gain to making the booster engines stronger if the O-ring was weak.  There was little point in improving guidance, or communications, or increasing the quality of crew training, if the O-ring was weak.  

ACTION POINT: The logic of the chain is at work in situations ranging from mountain climbing to the space shuttle to aesthetic judgement--situations in which the quality of components or sub parts matters.

Hierarchies of Objectives III

This presents the skills of coordination as if they were rungs on a ladder, with higher rungs in reach only when lower rungs had been attained.

To concentrate on an objective--to make it a priority--necessarily assumes that many other important things will be take care of.  In the case of PJ, he was able to concentrate on the coordination between his helicopter and landing on a rescue vessel at sea because he already possessed layer upon layer of competences at flying that had become routine.

This presents the skills of coordination as if they were rungs on a ladder, with higher rungs in reach only when lower rungs had been attained.  Indeed, PJ's concept of layering of skills explains why some organizations can concentrate on issues that others cannot.  

ACTION POINT: Master the basics of "flying" your business and then pursue higher rungs.

Hierarchies of Objectives II

The obvious reason is differences in skills and accumulated resources.

What is proximate for one nation, one organizations, or even one person may be far out of reach to another.  The obvious reason is differences in skills and accumulated resources.  An understanding of this is sharpened from an illustration discussing helicopters.

PJ lives on the East Cape of Baja California.  He is now a surfer and a fisherman, but was once a helicopter pilot, first in Vietnam, and then in rescue work. The land in Baja California is unspoiled by shopping malls, industry, paved highways, or fences.  One day in a conversation PJ was asked if helicopters were safer than airplanes, since if the engine failed, a helicopter could be auto rotated to the ground, like having a parachute.

PJ snorted "If your engine fails you have to pull the collective all the way down, get off the left pedal and hit the right pedal hard to get some torque,  You have about one second to do this before you are dropping too fast."  He paused, "You can do it , but you better not have to think about it."

He continued, "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."  "Master all that--make it automatic--and you can begin to think about landing on a mountain in high wind in the late evening, or landing on a rolling, pitching deck deck of a ship at sea."

ACTION POINT: Sharpen key skills and take advantage of accumulated resources to make them automatic so that larger objectives can be pursued.

Hierarchies of Objectives

Proximate objectives not only cascade down hierarchies; they cascade in time.

In organizations of any size, high-level proximate objectives create goals or 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.

Proximate objectives not only cascade down hierarchies; they cascade in time.  For instance, when Nestle purchased British chocolate company Rowntree, top management made a judgement that Nestle's transnational food-marketing skills would be able to take Rowntree's Britain-centered brands and move them into many other countries.  The first steps in that directions were very successful, and the combined management's then developed more subtle and nuanced objectives.

ACTION POINT: Anytime a company enters a new business or market, there is necessarily this cascade of adjusting and elaborating proximate objectives.

Mary Did You Know?

Mary, did you know that your baby boy will one day walk on water?  Mary, did you know that your baby boy will save our sons and daughters?

Did you know that your baby boy has come to make you new?  The child that you've delivered will soon delivery you.

Mary, did you know that your baby boy will give sight to a blind man?  Mary, did you know that your baby boy will calm a storm with His hand?

Did you know that your baby boy has walked where angels trod?  When you kiss your little baby, you've kissed the face of God.

The blind will see, the deaf will hear, the dead will live again.  The lame will leap, the dumb will speak the praises of the Lamb!

Mary, did you know that your baby boy is Lord of all creation?  Mary, did you know that your baby boy will one day rule the nations?

Did you know that your baby boy is heaven's perfect Lamb?  This sleeping child you're holding is the Great I AM.

Merry Christmas!

Taking A Strong Position And Creating Options

Therefore, the more uncertain and dynamic the situation, the more proximate a strategic objective must be.

Many writers on strategy seem to suggest that the more dynamic the situation, the farther ahead a leader must look.  This is illogical.  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 a 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.

ACTION POINT: Look for ways to take strong positions and create options.

Resolving Ambiguity

Many leaders fail badly at this responsibility, announcing ambitious goals without resolving a good chunk of ambiguity about the specific obstacles to overcome.  

A good proximate objectives feasibility does wonders for organizational energy and focus.  One of the most vexing problems facing the team considering putting man on the moon was not knowing what the lunar surface was made of.   The moon might be soft powdery residue from eons of meteoric bombardment or it might be a made of needle sharp crystals or a jumble of large boulders.  All of these possibilities created a difficult time for the engineers creating the design for the landing craft.

Phyllis Buwalda who directed Future Mission Studies described the surface as hard and grainy with slopes of no more than fifteen degrees based on her intuition that the smoother parts of the earth were like that, so it was a good guess that the moon would be similar.  Even though she really didn't know what the surface was like, she realized the engineers could not work without a specification.  Her specification was a strategically chosen proximate objective that helped the engineers move the project along.  Her specification helped absorb much of the ambiguity in the situation, passing on to the designers a simpler problem. 

Phyllis's insight that the engineers can't work without a specification applies to most organized human effort.  Every organization faces a situation where the full complexity and ambiguity of the situation is daunting.  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 overcome.  

ACTION POINT: 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.

Un-Proximate Objectives

...it is not a proximate objective because it is not feasible within the present legal and law-enforcement frame work. 

Unfortunately, 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.  Take, for example, the War on Drugs.  

No matter how desirable it might be to stop the use of illegal drugs, it is not a proximate objective because it is not feasible within the present legal and law-enforcement frame work.   Indeed, the enormous efforts directed at this objective may only drive out the small-time smuggler, raise the street price, and make it even more profitable for the sophisticated drug cartels.

ACTION POINT: Avoid objectives that are not feasible within existing frameworks.

Proximate Objectives

The objective Kennedy set, seemingly audacious to the layman, was quite proximate.

Kennedy's 1961 speech on the issue remains a model of clarity.   In his speech, Kennedy diagnosed the problem as world opinion.   He said, "The dramatic achievements in space which occurred in recent weeks should have made clear to us all, as did the Sputnik in 1957, the impact of this adventure on  the minds of men everywhere."  He argued that the Soviet Union's strategy of focusing its much poorer technological resources on space was leveraging, to its advantage, the world's natural interest in these out-of-this-world accomplishments.  He argued that being first to land people on the moon would be a dramatic affirmation of American leadership.  

The United States had, ultimately, much greater resources to draw upon; it was a matter of allocating and coordinating them.  Importantly, the moon mission had been judged feasible.  Kennedy did much more than point at the objectives; he laid out the steps along the way--unmanned exploration, larger booster rockets, parallel development of liquid and solid fuel rockets, and the construction of a landing vehicle.

The objective was feasible because engineers knew how to design and build rockets and spacecraft.  Much of the technology had already been developed as part of the ballistic missile program.  And this objective was intensely strategic.  It grew directly out of Kennedy's question "How can we beat the Russians in space?"  The objective Kennedy set, seemingly audacious to the layman, was quite proximate. It was a matter marshaling the resources and political will. 

ACTION POINT: Pursue proximate objectives by marshaling resources and will.

Proximate Objectives

Folly is the direct pursuit of happiness and beauty. - George Bernard Shaw

One of a leader's most powerful tools is the creation of a good proximate objective--one that is close enough at hand to be feasible.  A proximate objective names a target that the organization can reasonably be expected to hit, even overwhelm.

For example, President Kennedy's call for the United States to place a man on the moon by the end of the 1960's is often held out as a bold push into the unknown.  Along with Martin Luther King Jr.'s "I have a Dream" speech, it has become almost a required reference in any of today's "how to be a charismatic leader" manuals extolling the magical virtues of vision and audacious goals.  Actually, however, landing on the moon was a carefully chosen proximate objective. 

ACTION POINT: Select targets that the organization can reasonably be expected to hit and overwhelm.

Concentration and Art

That is the power of concentration--of choosing an objective that can be decisively affected by the resources at hand. 

An example of concentrating on an effective objective was Harold William's strategy for the Getty Trust.  Williams got the worlds best job in 1983, managing the $1.4 billion trust that J. Paul Getty established for the Getty museum in Malibu after his death in 1976.  The trust was required by law to spend 4.5 percent of it's principle or about $65 million each year.

During Williams tenure, the Getty Foundation grew from a small elite collection to a major force in the art world.  In 2000, Williams explained his strategy:

"The Getty Trust was a very large amount of money, and we had to spend a considerable amount each year.  Our mandate was art, but I had to decide how to actually spend the funds.  We could have simply built a great collection--that would have been the obvious thing to do.  Buy art.  But I wasn't comfortable with that as a direction.  All we would really accomplish would be to drive up the price of art and move some of it from New York and Paris to Los Angeles.

It took some time, but I began to develop the idea that art could be, indeed, should be, a more serious subject than it was.  Art is not just pretty objects; it is a vital part of human activity.  In a university, people spend a great deal of effort studying languages and histories.  We know all about marriage contracts in remote tribes and the histories of many peoples.  But art has been treated as a sideshow.  I decided that the Getty could change this.  Instead of spending our income on buying art, we could transform the subject.

The Getty would begin to build a complete digital catalog of all art, including dance, song, and textiles. It would develop programs to educate art teachers and host advanced research on art and society.  The Getty would host the best conservation talent in the world and develop new methods of conserving and restoration.  In this way, I decided, we would have an impact far beyond simply putting art on display."

With $65 million to spend each year, Williams could have simply bought art or given money to schools and universities for their arts programs.  But by aiming to transform the study of art, Williams designed an objective that was novel and nicely scaled to the resources at his disposal.  Put simply, he invested where his resources would make a large and more visible difference.  That is the power of concentration--of choosing an objective that can be decisively affected by the resources at hand.  There is no way to know whether William's strategy created greater good than a simpler strategy of giving away money, but it did make a bigger bang and, thereby, attracted more energy and support from employees and outside organizations. 

ACTION POINT: Identify strategies that will attract the energy and support of your employees and outside organizations.

Momentum

the strategist can increase the perceived effectiveness of action by focusing effort on targets that will catch attention and sway opinion. 

From a psychological perspective, there can be returns to focus or concentration when people ignore signals below a certain threshold (called a "salience effect" in psychology) or when they believe in momentum-that success leads to success.  

In either case, the strategist can increase the perceived effectiveness of action by focusing effort on targets that will catch attention and sway opinion.  It may, for example, have more impact on public opinion to completely turn around two schools than to make a 2 percent improvement in two hundred schools.  In turn, peoples' perceptions of efficacy affect their willingness to support and take part in further actions.

ACTION POINT: Focus your efforts on targets that will sway opinion and catch attention.

Threshold Effect II

Just as an individual cannot solve five problems at once, most organizations concentrate on a few critical issues at any one time.

Due to similar forces, business strategists will often prefer to dominate a small market segment over having an equal number of customers who represent only a sliver of a larger market.  Politicians will often prefer a plan that delivers clear benefit to a recognizable group over one that provides larger benefits spread more thinly across the population.

Within organizations, some of the factors giving rise to concentration are the substantial threshold effects in effecting change and the cognitive and attention limits of the senior management group.  Just as an individual cannot solve five problems at once, most organizations concentrate on a few critical issues at any one time.

ACTION POINT: Recognize the "few" critical issues and focus on them.

Threshold Effect

One has to get over this hump, or threshold, to start getting a response...

A "threshold effect" exists when there is a critical level of effort necessary to affect the system.  Levels of effort below this threshold have little payoff.  When there are threshold effects, it is prudent to limit objectives to those that can be affected by the resources at the strategist's disposal.

For example, there seems to be a threshold effect in advertising.  That is, a very small amount of advertising will produce no result at all.  One has to get over this hump, or threshold, to start getting a response to advertising efforts.  This means it may pay companies to pulse their advertising, concentrating it into relatively short periods of time, rather than spreading it evenly.  It may also make sense for a company to roll out a new product region by region, concentrating its advertising where the product is new so as to spur adoption.

ACTION POINT: Apply the critical level of effort needed to achieve threshold.

Concentration

If resources were not limited, there would be no need to select one objective over another.  

Returns to concentration arise when focusing efforts on fewer, or more limited, objectives generates larger payoffs.  These gains flow from combinations of constraints and threshold effects.  If resources were not limited, there would be no need to select one objective over another.  

If rivals could easily see our moves and quickly mobilize responses, we would gain little from concentrating on temporary weaknesses.  If senior leadership did not have limited cognition, they would gain nothing from concentrating their attention on a few priorities.

ACTION POINT: What are the few priorities that should gain the most concentration?

Pivot Point III

Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!"

In direct rivalry, the pivot point may be an imbalance between a rival's position or disposition of forces and their underlying capabilities, or between pretension and reality.  On June 12 1987, President Reagan stood at the Brandenburg Gate in West Berlin and said: "General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!"

Of course, Reagan did not expect Gorbachev to do any such thing.  The speech was directed to Western Europeans, and its purpose was to highlight, and thereby exploit, the imbalance between a system of that allowed the free movement of people with one that had to restrain its citizens with barbed wire and concrete.  That imbalance had existed for decades.  Had Reagan given a similar challenge to Yuri Andropov in 1983, it would have had little effect.  It became a pivot point because of the extra imbalance between Mikhail Gorbachev's claim that the Soviet Union was liberalizing and the facts on the ground.

ACTION POINT:  Look for the imbalance in your competitors claims and their actual abilities.

Pivot Points II

A pivot point magnifies the effect of effort.

At the same time 7-Eleven was expanding its operations in China.  There, Murata explained, their outstanding advantage was cleanliness and service.  The Chinese consumers were used to being supplicants at a retail outlet and 7-Eleven Japan's tradition of spotless interiors and white-gloved service personnel who greeted customers with bows and smiles, as well as its good-tasting lunches, were producing twice as many sales per square foot than any competitor obtained. 

Murata's strategy focused organizational energy on decisive aspects of the situation.  It was not a profit plan or a set of financial goals.  It was an entrepreneurial insight into the situation that had the potential to actually create and extend advantage.

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 business strategist senses such imbalances in pent-up demand that has yet to be fulfilled or in a robust competence developed in one context that can be applied to good effect in another.

ACTION POINT: Identify your natural or created imbalances and use them to magnify effect and effort.

Pivot Points

...a pivot point that will magnify the effects of focused energy and resources.

To achieve leverage, the strategist must have insight into a pivot point that will magnify the effects of focused energy and resources.  As an example of a pivotal objective in 2008 Noritoshi Murata, the president and chief operating officer of Seven & i Holdings was discussing competitive strategy.  This company owns all of the 7-Eleven convenience stores in the United States and Asia, as well as grocery superstores and department stores in Japan and other ventures.

Focusing on Japan, Murata explained that the company had come to the conclusion that Japanese customers were extremely sensitive to variations in local tastes and fond of both newness and variety.  "In Japan," he said, "consumers are easily bored.  In soft drinks for example, there are more than two hundred soft-drink brands and lots of new ones each week.  a 7-Eleven displays fifty varieties with a turnover of seventy percent each year.  The same holds true for food categories."

To create leverage around this patter, 7-Eleven Japan has developed a method of collecting information from store managers and employees about local tastes and forming quick-response merchandising teams to develop new product offerings.  To further leverage this information and team skills, the company has developed relationships with a number of second and third tier food manufacturers and found ways to quickly bring new offering to market under its own private-label brand, at low prices, using the food manufacturerss' excess capacity.

ACTION POINT: Look for the trends that will lead you to focus on pivot points for creating strategic advantage.

Anticipation IV

In many circumstances, anticipation simply means considering the habits, preferences, and policies of others, as well as various inertia's and constraints on change.  

Anticipation does not require psychic powers.  In many circumstances, anticipation simply means considering the habits, preferences, and policies of others, as well as various inertia's and constraints on change.  

Thus, do not expect California to balance its budget anytime soon, but you can expect a continued exodus of talent from the state.  We can expect another serious terrorist attack on the United States, but should not anticipate that the stultifying iron curtain between the CIA and the FBI will be removed short of all-out-war.  Google will continue to develop office-oriented applications that can be used online through a browser, but don't anticipate effective responses from Microsoft, who will be loath to cannibalize its PC-based Microsoft Office business.   The use of smart phones will grow rapidly and the infrastructure will probably end up being overtaxed so industry consolidation will be likely.

All of these are examples of anticipation based on considering the habits, preferences and policies of others.

ACTION POINT: Observe the habits, preferences and policies of others to develop anticipation.

Anticipation III

If there is a storm in the Himalayas, you can confidently predict that tomorrow, or the next day, there will be flooding in the Ganges plain.

Most strategic anticipation draws on the predictable "downstream" results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behavior predictable.

Some of the most striking anticipations made in any modern business were created by Pierre Wack and Ted Newland of Group Planning at Shell International.  In 1980 Wack said that "certain aspects of future events are predetermined: If there is a storm in the Himalayas, you can confidently predict that tomorrow, or the next day, there will be flooding in the Ganges plain."  The flood Wack and Newland had predicted back in 1970 was the rise of OPEC and ensuing energy crisis.  The storm creating this flood had been discerned in the pattern of incomes and populations of key oil-producing countries, In particular, Iran, Iraq, and Venezuela, all had high oil reserves, large growing populations, and ambitious development goals.  Wack and Newland predicted that such countries would be strongly motivated to seek price increases.  They saw that price increases would, in turn,  make countries such as Saudi Arabia and Kuwait realize that oil in the ground might appreciate faster than the dollars it bought once it was pumped and sold. 

ACTION POINT:  What are the storms in your industry and their likely downstream floods?

Anticipation II

The most critical anticipations are about the behaviors of others...

The most critical anticipations are about the behaviors of others, especially rivals.  It is now clear that U.S. military plans for the invasion of Iraq in the spring of 2003 failed to anticipate the rise of a vigorous insurgency.  As the army's own assessments states: "The difficulty in Iraq in April and May 2003 for the Army, and the other Services, was that the transition to a new campaign was not well thought out, planned for, and prepared for before it began.  Additionally, the assumptions about the nature of post-Saddam Iraq on which the transition was planned proved to be largely incorrect."

At the same time, the Iraqi insurgency was, at least in part, initiated by Iraqi ex-military officers who anticipated the media coverage of U.S.  casualties would tilt U.S. public opinion in favor of withdrawal, as it had in Vietnam and, more recently, in Mogadishu.  Indeed, according to Bob Woodward, "Saddam had commissioned an Arabic translation of Black Hawk Down issued copies to his senior offices."  So, in a deeper sense, U.S. planners failed to anticipate the Iraqis' anticipations.

ACTION POINT:  Consider the behaviors of your competitors.

Anticipation

the key anticipations are often of buyer demand and competitive reactions.

The strategy must have insight into predictable aspects of others' behavior that can be turned to advantage.  At the simplest level, a strategy of investing in Manhattan real estate is based on the anticipation that other people's future demand for this real estate will raise its value.  In competitive strategy, the key anticipations are often of buyer demand and competitive reactions.

As an example of anticipation, while the SUV craze was booming in the United States, Toyota invested more than $1 billion in developing hybrid gasoline-electric technologies: an electronically controlled continuously-variable-speed transmission and its own chips and software to control the system.  There were two anticipations guiding this investment.  First, management believed that fuel economy pressures would, over time, make hybrid vehicles a major product category.  Second, management believed that, once presented with the chance to license Toyota's technology, other automakers would do so and not invest in developing possibly superior systems.  Thus far, both anticipations have proven reasonably accurate.

ACTION POINT: What are the predictable behaviors of your markets that you can anticipate to create advantage?

Leverage II

strategic leverage arises from a mixture of anticipation, insight into what is most pivotal or critical in a situation

Knock loose a keystone, and a giant will fall. Seize the moment, as James Madison did in 1787, turning colleague Edmund Randolph's ideas about three branches of government with a bicameral legislature into the first draft of the Constitution, and you just might found a great nation.

When the largest computer company in the world comes knocking at your door in 1980 asking if you can provide an operating system for a new personal computer, say, "Yes, we can!"  And be sure to insist, as Bill Gates did in 1980, that, after they pay you for the software, the contract still permits you to sell it to third parties.  You just might become the richest person in the world.

ACTION POINT: 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.

Leverage

Finding such crucial pivot points and concentrating force on them is the secret of strategic leverage.

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.  This source of power can be called leverage.

Archimedes, one of the smartest people who ever lived, said, "Give me a lever long enough, a fulcrum strong enough, and I'll move the world."  What he no doubt knew, but did not say, was that to move the earth, his lever would have to be billions of miles long.  With this enormous lever, a swing of Archimedes' arm might move the earth by the diameter of one atom.  Given the amount of trouble involved, he would be wise to apply his lever to a spot where this tiny movement would make a large difference.  Finding such crucial pivot points and concentrating force on them is the secret of strategic leverage.

ACTION POINT: Look for the place where small changes will make big differences.

Things I am Thankful for

Grace

Wife

Sons
Daughters
Friends

Work
This time of year.

Happy Thanksgiving

Sources of Power

There is more to know about strategy than any one volume can possible treat.

The next posts will explore 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.

Obviously, this set is not exhaustive.  There is more to know about strategy than any one volume can possible treat.  The sources of power (and trouble) featured were chosen for both their generality and freshness.  Most extend beyond a business context and apply to government, security, and nonprofit situations as well.  Plus, they explore particular issues that are fundamental but that have not been given as much attention as they deserve.

ACTION POINT: Stay tuned for more on sources of power.

Sources of Power

a "good strategy" is an approach that magnifies the effectiveness of actions by finding and using sources of power

In very general terms, a good strategy works by harnessing power and applying it where it will have the greatest effect.  In the short term, this may mean attacking a problem or rival with adroit combinations of policy, actions, and resources. 

In the longer term, it may involve cleverly using policies and resource commitments to develop capabilities that will be of value in future contests.  In either case, a "good strategy" is an approach that magnifies the effectiveness of actions by finding and using sources of power.

ACTION POINT: Find, use and magnify your sources of power.

Coordination V

Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.

We should seek coordinated policies only when gains are very large.   There will be costs to demanding coordination, because it will ride roughshod over economies of specialization and more nuanced local responses.

The brilliance of good organization is not in making sure that everything is connected to everything else.  Down the road lies a frozen maladaptive stasis.  Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.

ACTION POINT: Seek specialization in the right activities and impose coordination only when essential and for the benefit of the entire organization.

Coordination IV

Coordination is costly, because it fights against the gains to specialization,

On the other hand, the potential gains to coordination do not mean that more centrally directed coordination is always a good thing.  Coordination is costly, because it fights against the gains to specialization, the most basic economies in organized activity.  

To specialize in something is, roughly speaking, to be left alone to do just that thing and not be bothered with other tasks, interruptions, and other agents' agendas.  As is clear to anyone who has belonged to a coordinating committee, coordination interrupts and de-specializes people.

ACTION POINT: Understand the need and time for specialization.

Coordination III

It takes policies devised to benefit the whole to sort out this conflict.

As a simple example, Salespeople love to please customers with rush orders, and manufacturing people prefer long uninterrupted  production runs.  But you cannot have long production runs and handle unexpected rush orders all at the same time.  It takes policies devised to benefit the whole to sort out this conflict.

On a larger canvas, in World War II, President Franklin D. Roosevelt coordinated political, economic, and military power to defeat Nazi Germany, using United States' productive capacity to support the Soviet Union, thus allowing it to survive and degrade the Nazi war machine before Americans landed in Normandy.  Another element of strategy, one with great consequences, was to focus the bulk of American resources to first winning in Europe before fully taking on Japan, a complex coordination of forces over time.  Neither of these crucial policies would have emerged out of decentralized decision making among the Departments of State and War, the various war production boards, and multiple military commands.

ACTION POINT: Coordinate polices devised to benefit the whole of the organization.

Coordination II

It is an exercise in centralized power, used to overcome the natural workings of a system.  

Strategy is visible as coordinated action imposed on a system.  When we say strategy is "imposed", we mean just that.  It is an exercise in centralized power, used to overcome the natural workings of a system.  This coordination is unnatural in the sense that it would not occur without the hand of strategy.

The idea of centralized direction may set off warning bells in a modern educated person.  Why does it make sense to exercise centralized power when we know that many decisions are efficiently made on a decentralized basis?  One of the great lessons of the twentieth century--the most dramatic controlled experiment in human history--was that centrally controlled economies are grossly inefficient.   More people starved to death in Stalin's and Mao Tse-tung's centrally planned regimes than were killed in World War II.

In modern economies, trillions of decentralized choices are made each year, and this process can do a pretty good job of allocating certain kinds of scarce resource.  Thus, when the price of gasoline rises, people start buying more fuel-efficient cars without any central planning.  After a hurricane, when there is much to rebuild, wages rise, attracting more workers to the stricken area. 

But 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 accrue only if decisions are properly coordinated. 

ACTION POINT: Understand when it makes sense to impose centralized strategy and when to allow decentralized autonomy.

Coordination

Strategic coordination, or coherence, is not ad hoc mutual adjustment.

A strategy coordinates action to address a specific challenge.  The idea that coordination, by itself, can be a source of advantage is a very deep principle.  It is often under appreciated because people tend to think of coordination in terms of continuing mutual adjustments among agents.

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.

ACTION POINT: Coordinate your actions to accomplish your strategy.

Conflict

Strategic actions that are not coherent are either in conflict with one another or taken in pursuit of unrelated challenges.

Strategic actions that are not coherent are either in conflict with one another or taken in pursuit of unrelated challenges.  Consider Ford Motor Company.  When Jacques Nasser was the CEO of Ford Europe and vice president of Ford product development, he said, "Brand is the key to profits in the automobile industry."  

Moving into the corporate CEO spot in 1999, Nasser quickly acted to acquire Volvo, Jaguar, Land Rover, and Aston Martin. However, at the same time, the company's original guiding policy of "economies of scale" was fully alive and kicking.  A senior Ford executive said in 2000: "You cannot be competitive in the automobile industry unless you produce at least one million units per year on a platform."  Thus, the actions of buying Volvo and Jaguar were conjoined with actions designed to put both brands on a common platform.  Putting Jaguar and Volvo on the same platform dilutes the band equity of both marques and annoys the most passionate customers, dealers, and service shops.  Volvo buyers don't want a "safe Jaguar"; they want a car that is uniquely safe.  And Jaguar buyers want something more distinctive than a "sporty Volvo."  These two sets of concepts and actions were in conflict rather than being coherent.

ACTION POINT: Look for potential conflicts that actions may cause and avoid them.

Coherence

Using such a cost advantage to good effect will require the alignment of many actions and policies.

The actions within the kernel of strategy should be coherent.  That is, the resource deployments, policies, and maneuvers that are undertaken should be consistent and coordinated.  The coordination of action provides the most basic source of leverage of advantage available in strategy.

In a fight, the simplest strategy is a feint to the left and then punch from the right, a coordination of movement in time and space.  The simplest business strategy is to use knowledge gleaned by sales and marketing specialists to affect capacity expansion or product design decisions--coordination across functions and knowledge bases.  

Even when an organization has an apparently simple and basic source of advantage, such as being a low-cost producer, a close examination will always reveal a raft of interrelated mutually supporting policies that, in this case, keep costs low. Furthermore, it will be found that these costs are lower only for a certain type of products delivered under certain conditions.  Using such a cost advantage to good effect will require the alignment of many actions and policies.

ACTION  POINT: Ensure your actions are aligned with your policies.

Coherent Action III

...strategy is primarily about deciding what is truly important and focusing resources and action on that objective

The kernel of strategy -- a diagnosis, a guiding policy, and coherent action -- applies to any complex setting.  In many situations the required actions are not mysterious.  The impediment is often the hope that the the pain that those actions may cause could 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.

ACTION POINT: Strategy is a hard discipline because focusing on one thing slights another.

Coherent Action II

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

INSEAD, a global business school located in France, was the brainchild of Harvard professor General Georges F. Doriot. The INSEAD library holds a bronze statue of Doriot inscribed with his observation "Without action, the world would still be an idea."

In many situations, the main impediment to action is the forlorn hope that certain painful choices or actions can be avoided--that the whole long list of hoped-for "priorities" can all be achieved.  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.

ACTION POINT: Determine and decide on priorities, then act.

Coherent Action

Strategy is about action, about doing something.

Many people call the guiding policy "the strategy" and stop there.  This is a mistake.  Strategy is about action, about doing something.  The kernel of a strategy must contain action.  It does not need to point to all the actions that will be taken as events unfold, but there must be enough clarity about action to bring concepts down to earth. To have punch, actions should coordinate and build upon one another, focusing organizational energy.

ACTION POINT: Have a bias toward action.

The Guiding Policy V

...the policy itself also created advantage by resolving the uncertainty about what to do, about how to compete, and about how to organize.

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.

For example, Gerstner's "provide customer solutions" policy certainly counted on the advantages implicit in IBM's world class technological depth and expertise in almost all areas of data processing.  But the policy itself also created advantage by resolving the uncertainty about what to do, about how to compete, and about how to organize.  It also began the process of coordinating and concentrating IBM's vast resources on a specific set of challenges.

ACTION POINT: Reduce complexity and ambiguity and use anticipation to create advantage. 

The Guiding Policy IV

the heart of the matter in strategy is usually advantage. 

A good guiding policy tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage.  Indeed, the heart of the matter in strategy is usually advantage.  Just as a lever uses mechanical advantage to multiply force, strategic advantage multiplies the effectiveness of resources and/or actions.  Importantly, not all advantage is competitive.  In nonprofit and public policy situations, good strategy creates advantage by magnifying the effects of resources and actions.

In most modern treatments of competitive strategy, it is now common to launch immediately into detailed descriptions of specific sources of competitive advantage.  Having lower costs, a better brand, a faster product-development cycle, more experience, more information about customers, and so on, can all be sources of advantage.  This is all true, but it is important to take a broader perspective.  A good guiding policy itself can be a source of advantage.

ACTION POINT: Take a broad perspective and understand your advantage when developing strategy.

The Guiding Policy III

 Good strategy is not just "what" you are trying to do. 

Many people use the term "strategy" for what we are calling the "guiding policy."  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.

ACTION POINT: Understand the "why" and "how" of what you are trying to accomplish.

The Guiding Policy II

they define a method  of grappling with the situation and ruling out a vast array of possible actions.

Good guiding policies are not goals or visions or images of desirable end states.  Rather, they define a method  of grappling with the situation and ruling out a vast array of possible actions.  For example, Well Fargo's corporate vision is this: "We want to satisfy all of our customers' financial needs, help them succeed financially, be the premier provider of financial services in every one of our markets, and be known as one of America's great companies."

This "vision" communicates an ambition, but it is not a strategy or a guiding policy because there is no information about how this ambition will be accomplished.  Wells Fargo chairman emeritus and former CEO Richard Kovacevich knew this an distinguished between this vision and his company's guiding policy of using network effects of cross-selling.  That is, Kovacevich believed that the more different financial products Wells Fargo could sell to a customer, the more the company would know about that customer and about its whole network of customers.  That information would, in turn, help it create and sell financial products.  This guiding policy, in contrast to Wells Fargo's vision, calls out a way of competing--a way of trying to use the company's large scale to advantage.

ACTION POINT: Understand the distinction between guiding policy and vision.

The Guiding Policy

...it channels action in certain directions without defining exactly what shall be done.

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 shall be done.

Kennan's containment and Gerstner's drawing on all of IBM's resources to solve customers' problems are examples of guiding policies.  Like the guardrails on a highway, the guiding policy directs and constrains action without fully defining its content.

ACTION POINT: Develop an outline to overcome the obstacles that are present by your diagnosis.

The Diagnosis VI

most deep strategic changes are brought about by a change in diagnosis--a change in the definition of the company's situation. 

In business, most deep strategic changes are brought about by a change in diagnosis--a change in the definition of the company's situation.  For example, when Lou Gerstner took over the helm at IBM in 1993, the company was in serious decline.  Its historically successful strategy had been organized around offering complete, integrated, turnkey end-to-end computing solutions to corporations and government agencies.  However, the advent of the microprocessor changed all that.  The computer industry began to fragment, with separate firms offering chips, memory, hard disks, keyboards, software, monitors, operating systems, and so on.    Then new industry structure was fragmented and, it was argued IBM should be broken up and fragmented to match.

After studying the situation, Gerstner changed the diagnosis.  He believed that in an increasingly fragmented industry, IBM was the one company that had expertise in all areas.  It's problem was not that it was integrated but that it was failing to use the integrated skills it possessed.  IBM, he declared, needed to become more integrated--but this time around customer solutions rather than hardware platforms.  The primary obstacle was the lack of internal coordination and agility.  Give this new diagnosis, the guiding policy became to exploit the fact that IBM was different, in fact, unique.   IBM would offer customers tailored solutions to their information-processing problems, leveraging its brand name and broad expertise, but willing to use outside hardware and software as required.   Put simply, its primary value-added activity would shift from systems engineering to IT consulting, form hardware to software.

Neither the "integration is obsolete" nor the "knowing all aspects of IT is our unique ability" viewpoints are, by themselves, strategies.  But these diagnoses take the leader, and all who follow, in very different directions.

ACTION POINT:  Consider the direction that a diagnosis will take you.

The Diagnosis V

The United States would have to keep the virus from spreading until it finally died out.

A diagnosis is generally denoted by metaphor, analogy, or reference to a diagnosis or framework that has already gained acceptance.  For example, every student of U.S. national strategy knows about the diagnosis associated with the Cold War guiding policy of containment.  This concept originated with George Kennan's famous "long telegram" of 1946.   Having served as an American diplomat in the USSR and having seen Soviet terror and politics at close hand, he carefully analyzed the nature of Soviet ideology and power.  

Kennan started with the observation that the Soviet Union was not an ordinary nation-state.  Its leaders defined their mission as opposition to capitalism and as spreading the gospel of revolutionary communism by whatever means necessary.  He stressed that antagonism between communism and capitalist societies was a central foundation of Stalin's political regime, preventing any sincere accommodation or honest international agreements.  However, he pointed out that the Soviet leaders were realists about power, Therefore, he recommended a guiding policy of vigilant counter force.

Kennan's diagnosis for the situation--a long-term struggle without the possibility of a negotiated settlement--was widely adopted within policy-making circles in the United States.   His guiding policy of containment was especially attractive as it specified a broad domain of action--the USSR was metaphorically speaking, infected by a virus.  The United States would have to keep the virus from spreading until it finally died out.

ACTION POINT:  When diagnosing a situation, consider a metaphor that may apply.

The Diagnosis IV

good strategy tends to be based on the diagnosis promising leverage over outcomes.

A good strategic diagnosis does more than explain a situation--it also defines a domain of action.  Whereas a social scientist seeks a diagnosis that best predicts outcomes, good strategy tends to be based on the diagnosis promising leverage over outcomes.  For instance, we know from research that K-12 student performance is better explained by social class and culture than by expenditures per student or class size, but that knowledge does not lead to many useful policy prescriptions.  A very different strategic diagnosis has been provided in the book Making Schools Work.  It diagnoses the challenge of school performance as one of organization rather than as one of class, culture, funding, or curriculum design.  Decentralized schools, the book argues, perform better.

Now, whether the organization of a school system explains most of the variations in school performance is not actually critical.  What is critical, and what makes this diagnosis useful to policy makers, is that organization explains some part of school performance and that, unlike culture or social class, organization is something that can be addressed with policy.

ACTION POINT: A good diagnosis should be able to be addressed with a policy.

The Diagnosis III

...diagnosis is a judgement about the meaning of facts.

At Starbucks, one executive might diagnose this challenging situation as "a problem in managing expectations."  Another might diagnose it as  "a search for new growth platforms."   A third might diagnose it as "an eroding competitive advantage."  None of these viewpoints is, by itself, an action, but each suggests a range of things that might be done and sets aside other classes of action as less relevant to the challenge.   Importantly, none of these diagnoses can be proven to be correct--each is a judgment about which issue is preeminent.  Hence, diagnosis is a judgement about the meaning of facts.

The challenge facing Starbucks was ill-structured.  By that I mean that no one could be sure how to define the problem, there was no obvious list of good approaches or actions, and the connections between most actions and outcomes were unclear.  Because the challenge was ill-structured, a real-world strategy could not be logically deduced from observed facts, Rather, a diagnosis has to be an educated guess as to what was going on in the situation, especially about what was critically important.

ACTION POINT: 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.  This simplified model of reality allows one to make sense of the situation and engage in further problem solving.

The Diagnosis II

Slowing growth is a problem for Wall Street but is a natural state in the development of any noncancerous entity.

In 2008, Starbucks was experiencing flat or declining same-store traffic growth and lower profit margins, its return on assets having fallen from a generous 14 percent to about 5.5 percent.  An immediate question arose:  How serious was the situation?  Any rapidly growing company must, sooner or later, saturate its market and have to clamp down on its expansion momentum.   Slowing growth is a problem for Wall Street but is a natural state in the development of any noncancerous entity.

Or were there more serious problems? Was overbuilding outlets a sign of poor management?  Were consumers' tastes changing once again?  As competitors improved their coffee offerings, was Starbucks' differentiation vanishing?  In fact, how important for Starbucks was the coffee-shop setting it provided versus the coffee itself?   Was Starbucks a coffee restaurant, or was it actually an urban oasis?  Could it brand be stretched to other types of products and even other types of restaurants?

ACTION POINT: Tune in tomorrow to find out more.

The Diagnosis

An especially insightful diagnosis an transform one's view of the situation, bringing a radically different perspective to bear. 

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.At a minimum, a diagnosis names or classifies the situation, linking facts into patterns and suggesting that more attention be paid to some issues and less to others.

An especially insightful diagnosis an transform one's view of the situation, bringing a radically different perspective to bear. When a diagnosis classifies the situation as a certain type, it opens access to knowledge about how analogous situations were handled in the past.  An explicit diagnosis permits one to evaluate the rest of the strategy.  Additionally, making the diagnosis an explicit element of the strategy allows the rest of the strategy to be revisited and changed as circumstances change. 

ACTION POINT: Develop strategic diagnosis by focusing on what is going on.

Examples of The Kernel of Good Strategy

In business, the challenge is usually dealing with change and competition. 

Here are some examples:

• For a doctor, the challenge appears as a set of signs and symptoms together with a history.  The doctor makes a clinical diagnosis, naming a disease or pathology.  The therapeutic approach chosen is the doctor's guiding policy.  The doctors specific prescriptions for diet, therapy, and medication are the set of coherent actions to be taken.
• In foreign policy, challenging situations are usually diagnosed in terms of analogies with past situations.  The guiding policy adopted is usually an approach deemed successful in some past situation.  Thus, if the diagnosis is the Iran's president, Mahmoud Ahmadinejad, is "another Hitler", war might be the logical implication.  However, if he is "another Moammar Gadhafi," then strong pressure coupled with behind-the-scenes negotiation might be the chosen guiding policy.  In foreign policy, the set of coherent actions are normally a mix of economic, diplomatic, and military maneuvers.
• In business, the challenge is usually dealing with change and competition.  The first step toward effective strategy is diagnosing the specific structure of the challenge rather than simply naming performance goals.  The second step is choosing an overall guiding policy for dealing with the situation that builds on or creates some type of leverage or advantage.  The third step is the design of a configuration of actions and resource allocations that implement the chosen guiding policy.
• In many large organizations the challenge is often diagnosed as internal.  That is, the organization's competitive problems may be much lighter than the obstacles imposed by its own outdated routines, bureaucracy, pools of entrenched interests, lack of cooperation across units,, and plain-old bad management.  Thus, the guiding policy lies in the realm of reorganizations and renewal.  And the set of coherent actions are changes in people, power, and procedures.  In other cases the challenge may be building or deepening competitive advantage by pushing the frontiers of organizational capability.

ACTION POINT: The three elements, diagnosis, guiding policy and coherent actions, emphasize the core of strategy.

The Kernel of Good Strategy

It is very straightforward and contains three elements:

Good strategy is coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure called the kernel.  A good strategy may consist of more than the kernel, but if the kernel is absent or misshapen, then there is a serious problem.

Once you apprehend this kernel, it is much easier to create, describe, and evaluate a strategy.  The kernel is not based on any one concept of advantage.  It does not require one to sort through legalistic gibberish about the differences between visions, missions, goals, strategies, objectives, and tactics.  It does not split strategies into corporate, business, and product levels.   It is very straightforward and contains three elements:

• A diagnosis that defines the nature of the challenge.   A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of a 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.

ACTION POINT: Base strategy on the three elements of the kernel of good strategy.

Discovering Power

 Looking at things from a different or fresh perspective can reveal new realms of advantage and opportunity as well as weakness and threat.

The second natural advantage of many good strategies comes from insight into new sources of strength and weakness.  Looking at things from a different or fresh perspective can reveal new realms of advantage and opportunity as well as weakness and threat.

The story of David and Goliath pitted a small, young, inexperienced but very brave shepherd against a massive, experienced and very strong warrior.   Moving toward Goliath, David took a stone and launched it with a sling.  Struck in the forehead Goliath fell dead on the spot.  It is said that strategy brings relative strength against relative weakness.  In this story the mismatch between David and Goliath was vast.   It is only after the stone is slung that the listeners viewpoint shifts and one realizes that the boy's experience with a shepherds sling is a strength as his is youthful quickness.

It is the victory of apparent weakness over apparent strength that gives this tale its bite.  More than the deft wielding of power, the listener experiences the actual discovery of power in a situation--the creation or revelation of a decisive asymmetry.     How someone can see what others have not, or what they have ignored, and thereby discover a pivotal objective and create an advantage, lies at the very edge of our understanding, something glimpsed only out of the corner of our minds.  Not every good strategy draws on this kind of insight, but those that do generate the extra kick that separates "ordinary excellence" from the extraordinary.

ACTION POINT: Look for ways to change your perspective.

Good Strategy is Unexpected

most organizations will not create focused strategies

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.  Many organizations, most of the time, don't have this.  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."

Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy.  Despite this, most organizations will not create focused strategies.  Instead, they will generate laundry lists of desirable outcomes and, at the same time, ignore the need for competence in coordinating and focusing their resources.  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.

ACTION POINT:  What are the actions and interests you should say no to?

Making Magic at Disney

...but what really drives the magic is the extraordinary service

The enchanted realm called Walt Disney World is about the size of San Francisco, or twice the size of Manhattan.  It is the largest tourist destination and one of the biggest convention sites in the world.  With it's 59,000 cast members, it is the largest single-site employer n the world.

It has thrilling attractions and great shows that bring millions of people a year to Disney World.  Those are extremely important, of course, but what really drives the magic is the extraordinary service.  Each of the 59,000 cast members is trained to treat each and every guest with the utmost care and respect.  And they do this consistently because they are treated exactly the same way by the Disney leadership: with the utmost care and respect.

If that sounds like a commercial fluff feel-good Disney movie, it is not.  It's a rational, muscular, no-nonsense business strategy.  And it's results are reflected in Disney's robust bottom line, not to mention its astonishing 70 percent return rate among visitors and the lowest employee turnover rate of any major company in the hospitality industry.  The formula is simple: Committed, responsible, inspiring leaders create a culture of care, which leads to measurable business results and a strong competitive advantage.

ACTION POINT: Commit to creating a culture of utmost care, respect and extraordinary service.

Coherence and Strength

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

The most basic idea of strategy is the application of strength against weakness.  Or, if you prefer, strength applied to the most promising opportunity.  The standard modern treatment of strategy has expanded this idea into a rich discussion of potential strengths, today called "advantages."  There are advantages due to being a first mover: scale, scope, network effects, reputation, patents, brands, and hundreds more.  None of these are logically wrong and each can be important.  Yet this whole mid level framework misses two huge, incredibly important natural sources of strength:

• Having a coherent strategy -- one that coordinates polices and actions.  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, wore, that conflict with one another.
• The creation of new strengths through subtle shifts in viewpoint.  An insightful re framing of a competitive situation can create whole new patters of advantage and weakness.  The most powerful strategies arise from such game-changing insights.

ACTION POINT: Re frame your viewpoint and look for new strengths.

Wheel Spinning

The most common complaint about "srategy' is the lack of execution. 

Many people assume that a strategy is a big-picture overall direction, divorced from any specific action.  But defining strategy as broad concepts, thereby leaving out action, creates a wide chasm between "strategy" and "implementation."  If you accept this chasm, most strategy work becomes wheel spinning.

The most common complaint about "strategy' is the lack of execution.   This complaint is usually the result of having confused strategy with goal setting.   When the "strategy" process is basically a game of setting performance goals --so much market share, so much growth, etc.--then there remains a yawning gap between these ambitions and action.

Strategy is about how to advance the organization's interests.  Of course leaders can set goals and delegate to others the job of figuring out what to do.  But that is not strategy, let's skip the spin and be honest--call it goal setting.

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.

ACTION POINT: Identify the coherent actions that will advance your organizations interests.

Strategic Lines II

"strategy" should mean a cohesive response to an important challenge

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.  To begin the journey toward clarity, it is helpful to recognize that the words "strategy" and "strategic" are often sloppily used to mark decisions made by the highest-level officials.  For example, in business, most mergers and acquisitions, investments in expensive new facilities, negotiations with important suppliers and customers, and overall organizational design are normally considered to be "strategic."  

However, why you speak of "strategy," you should not be simply marking the pay grade of the decision maker.  Rather, the term "strategy" should mean a cohesive response to an important challenge.  Unlike a stand-alone decision or a goal,  a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.

ACTION POINT: Identify the important  challenges you are facing.

Strategic Lines

Strategy cannot be a useful concept if it is a synonym for success. 

"Strategy is never quitting until you win."  This sort of mishmash of pop culture, motivational slogans, and business buzz speak is, unfortunately, increasingly common.  It short circuits real inventiveness and fails to distinguish among different senior-level management tasks and virtues.

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.    Strategy, responsive to innovation and ambition, selects the path, identifying how, why, and where leadership and determination are to be applied.

ACTION POINT: Identify the path and how, why and where to apply leadership.

The Kernal of Good Strategy

Crafting good strategies is based on an underlying structure:

There are dramatic differences between good and bad strategy. Crafting good strategies is based on an underlying structure:


1. A diagnosis: an explanation of the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as being the critical ones.

2. A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy.

ACTION POINT: Base strategy on the underlying structure of diagnosing the challenge, guiding through policy and following through with coherent actions.

Why so much Bad Strategy?

Strategy involves focus and, therefore, choice.

Bad strategy has many roots, two significant ones are: the inability to choose and template-style planning—filling in the blanks with “vision, mission, values, strategies.”


The inability to choose.  Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others. When this hard work is not done, weak strategy is the result. In 1992, there was a strategy discussion among senior executives at Digital Equipment Corporation (DEC). A leader of the minicomputer revolution of the 1960s and 1970s, DEC had been losing ground for several years to the newer 32-bit personal computers. There were serious doubts that the company could survive for long without dramatic changes.

Three points of view emerged from the executive team.  “Alec” argued that DEC had always been a computer company and should continue integrating hardware and software into usable systems. “Beverly” felt that the only distinctive resource DEC had to build on was its customer relationships. Hence, she derided Alec’s “Boxes” strategy and argued in favor of a “Solutions” strategy that solved customer problems. “Craig” held that the heart of the computer industry was semiconductor technology and that the company should focus its resources on designing and building better “Chips.”

Choice was necessary: both the Chips and Solutions strategies represented dramatic transformations of the firm, and each would require wholly new skills and work practices. One wouldn’t choose either risky alternative unless the status quo Boxes strategy was likely to fail. And one wouldn’t choose to do both Chips and Solutions at the same time, because there was little common ground between them. It is not feasible to do two separate, deep transformations of a company’s core at once. With equally powerful executives arguing for each of the three conflicting strategies, the meeting was intense. DEC’s chief executive, Ken Olsen, had made the mistake of asking the group to reach a consensus. It was unable to do that, because a majority preferred Solutions to Boxes, a majority preferred Boxes to Chips, and a majority also preferred Chips to Solutions. No matter which of the three paths was chosen, a majority preferred something else. This dilemma wasn’t unique to the standoff at DEC.

The French philosopher Nicolas de Condorcet achieved immortality by first pointing out the possibility of such a paradox arising, and economist Kenneth Arrow won a Nobel Prize for showing that “Condorcet’s paradox” cannot be resolved through cleverer voting schemes.

Not surprisingly, the group compromised on a statement: “DEC is committed to providing high-quality products and services and being a leader in data processing.” This fluffy, amorphous statement was, of course, not a strategy. It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to fore go. Ken Olsen was replaced, in June 1992, by Robert Palmer, who had headed the company’s semiconductor engineering. Palmer made it clear that the strategy would be Chips. One point of view had finally won. But by then it was five years too late. Palmer stopped the losses for a while but could not stem the tide of ever more powerful personal computers that were overtaking the firm. In 1998, DEC was acquired by Compaq, which, in turn, was acquired by Hewlett-Packard three years later.

Scan through template-style planning documents and you will find pious statements of the obvious presented as if they were decisive insights. Template-style strategy, the Jack Welch quote about “reaching for what appears to be the impossible” is fairly standard motivational fare, available from literally hundreds of motivational speakers, books, calendars, memo pads, and Web sites. This fascination with positive thinking has helped inspire ideas about charismatic leadership and the power of a shared vision, reducing them to something of a formula. The general outline goes like this: the transformational leader (1) develops or has a vision, (2) inspires people to sacrifice (change) for the good of the organization, and (3) empowers people to accomplish the vision.

By the early 2000s, the juxtaposition of vision-led leadership and strategy work had produced a template-style system of strategic planning. (Type “vision mission strategy” into a search engine and you’ll find thousands of examples of this kind of template for sale and in use.) The template looks like this:

The Vision. Fill in your vision of what the school/business/nation will be like in the future. Currently popular visions are to be the best or the leading or the best known.

The Mission. Fill in a high-sounding, politically correct statement of the purpose of the school/business/nation. Innovation, human progress, and sustainable solutions are popular elements of a mission statement.

The Values. Fill in a statement that describes the company’s values. Make sure they are noncontroversial. Key words include “integrity,” “respect,” and “excellence.”

The Strategies. Fill in some aspirations/goals but call them strategies. For example, “to invest in a portfolio of performance businesses that create value for our shareholders and growth for our customers.” This template-style planning has been enthusiastically adopted by corporations, school boards, university presidents, and government agencies. Scan through such documents and you will find pious statements of the obvious presented as if they were decisive insights. The enormous problem all this creates is that someone who actually wishes to conceive and implement an effective strategy is surrounded by empty rhetoric and bad examples.

ACTION POINT: Recognize that choice involves "choosing" and that strategy requires more than filling in the blanks.

Fluff

Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.

A final hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.


Here is a quote from a major retail bank’s internal strategy memorandum: “Our fundamental strategy is one of customer-centric inter mediation.” Inter mediation means that the company accepts deposits and then lends out the money. In other words, it is a bank. The buzz phrase “customer centric” could mean that the bank competes by offering better terms and service, but an examination of its policies does not reveal any distinction in this regard. The phrase “customer-centric intermediation” is pure fluff. Remove the fluff and you learn that the bank’s fundamental strategy is being a bank.

ACTION POINT: Good strategy requires deep thought and can be communicated simply and clearly.

Bad Strategic Objectives

...if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.

Another sign of bad strategy is fuzzy strategic objectives.  One form the problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. 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. Such lists usually grow out of planning meetings in which a wide variety of stakeholders suggest things they would like to see accomplished. Rather than focus on a few important items, the group sweeps the whole day’s collection into the strategic plan. Then, in recognition that it is a dog’s dinner, the label “long term” is added, implying that none of these things need be done today. As a vivid example, the mayor of a small city in the Pacific Northwest and his planning committee developed a strategic plan containing 47 strategies and 178 action items. Action item number 122 was “create a strategic plan.”

A second type of weak strategic objective is one that is “blue sky”—typically a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there. A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge. But if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

ACTION POINT:  Focus energy and resources on very few pivotal objectives whose accomplishment will lead to a cascade of favorable results.

Mistaking Goals for Strategy

“If you don’t have a competitive advantage, don’t compete.” - Jack Welch

A few years ago a strategist was talking to the management team of a graphic-arts company that was working on “strategic thinking.”   Chad Logan the leader of the management team said the overall goal was simple—it was called “20/20 plan.” Revenues were to grow at 20 percent a year, and the profit margin was to be 20 percent or higher. “This 20/20 plan is a very aggressive financial goal,” said the strategist. “What has to happen for it to be realized?” Logan tapped the plan with a blunt forefinger. “The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win—the drive to succeed. . . . Sure, 20/20 is a stretch, but the secret of success is setting your sights high. We are going to keep pushing until we get there.” The strategist tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?” Logan frowned and pressed his lips together, expressing frustration that I didn’t understand him. He pulled a sheet of paper out of his briefcase and ran a finger under the highlighted text. “This is what Jack Welch says,” he told me. The text read: “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.” (Logan’s reading of Welch was, of course, highly selective. Yes, Welch believed in stretch goals. But he also said, “If you don’t have a competitive advantage, don’t compete.”)

The reference to “pushing until we get there” reminded the strategist of an association with the great pushes of 1915–17 during World War I, which led to the deaths of a generation of European youths. Maybe that’s why motivational speakers are not the staple on the European management-lecture circuit that they are in the United States. For the slaughtered troops did not suffer from a lack of motivation. They suffered from a lack of competent strategic leadership. A leader may justly ask for “one last push,” but the leader’s job is more than that. The job of the leader—the strategist—is also to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.

ACTION POINT: Create conditions that will make your teams efforts effective.

The 15th Principle - Place Common Interest First

This last checklist precept  is expressed in our oft-used phrases of "servant" or "selfless" leadership...

To mark the moment of surrender of April 9, 1865 by the south during the civil war, General Ulysses S. Grant ordered a follow-up ceremony for April 12, with more than 4,000 union solders to be lined up at attention on one side of a field.  Robert E. Lee's defeated infantry units were then to march onto the field to place their regimental flags and firearms at the foot of a Union officer in charge.  For the honor of orchestrating the event Grant designated Joshua Lawrence Chamberlain.

As the first Confederate brigade approached Union forces at the field on April 12, four years to the date since the Rebel firing on Fort Sumter, Chamberlain ordered a bugle call that told Union solders to "carry arms" -- a posture of respect in which soldiers hold the musket in their right hand with the muzzle perpendicular to their shoulders.  Both Union and Confederate soldiers understood its meaning, since their military traditions had emanated from the same sources.

A Southern general riding near the front of the Confederate forces, John B. Gordon, appreciated the respectful signal that Chamberlain's soldiers displayed toward the Rebel soldiers on their day of ignominy, and Gordon ordered the same posture to be returned by his own troops.  As described by Chamberlain himself, "Gordon, at the head of the marching column, riding with heavy spirit and downcast face, catches the sound of the shifting arms, looks up, and taking the meaning," instructed "his successive brigades to pass with the same position."

The incident became known as a "salute returning a salute," a moment remembered for years by those who witnessed or heard of it, and one that implied reconciliation.  Some of Chamberlains fellow officers were angered by witnessing such a fraternal act after fighting the same soldiers on so many killing fields.  And for Chamberlain himself, it was a matter of saluting those who had tried to kill him only two weeks earlier.

For President Abraham Lincoln, the South's capitulation at Appomattox constituted not only an ending point for the armed rebellion but also a starting point for national reconciliation.  Even for him, however, the road to reunification was a bitter pill given the Union's grievous losses on the battlefields.  Events would take a horrible personal turn just two days after Chamberlain's salute to the Rebel army as the president and his wife watched a performance at Ford's Theater in Washington.

For both sides, though, gestures of reconciliation were more important than the hostilities that remained.  The latter were natural, the former learned, and Chamberlain's moment at the conclusion of the Civil War serves to remind us of the vital importance of a final Leader's Checklist principle: Placing common mission ahead of personal interest or animosity, especially when it seems least natural to do so.   This last checklist precept  is expressed in our oft-used phrases of "servant" or "selfless" leadership, and it is well captured in a U.S. Marine Corps dictum: "The officer eats last."

ACTION POINT: In setting strategy, communicating vision, and reaching decisions, common purpose comes first, personal self-interest last.

Failure to Face the Problem

If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy.
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 that, you cannot reject a bad strategy or improve a good one.


International Harvester learned about this element of bad strategy the hard way. In July 1979, the company’s strategic and financial planners produced a thick sheaf of paper titled “Corporate Strategic Plan: International Harvester.” It was an amalgam of five separate strategic plans, each created by one of the operating divisions.

The strategic plan did not lack for texture and detail. Looking, for example, within the agricultural-equipment group—International Harvester’s core, dating back to the McCormick reaper, which was a foundation of the company—there is information and discussion about each segment. The overall intent was to strengthen the dealer/distributor network and to reduce manufacturing costs. Market share in agricultural equipment was also projected to increase, from 16 percent to 20 percent.  That was typical of the overall strategy, which was to increase the company’s share in each market, cut costs in each business, and thereby ramp up revenue and profit. A summary graph, showing past and forecast profit, forms an almost perfect hockey stick, with an immediate recovery from decline followed by a steady rise.

The problem with all this was that the plan didn’t even mention Harvester’s grossly inefficient production facilities, especially in its agricultural-equipment business, or the fact that Harvester had the worst labor relations in US industry. As a result, the company’s profit margin had been about one-half of its competitors’ for a long time. As a corporation, International Harvester’s main problem was its inefficient work organization—a problem that would not be solved by investing in new equipment or pressing managers to increase market share. By cutting administrative overhead, Harvester boosted reported profits for a year or two. But following a disastrous six-month strike, the company quickly began to collapse. It sold off various businesses—including its agricultural-equipment business, to Tenneco. The truck division, renamed Navistar, is today a leading maker of heavy trucks and engines.

ACTION POINT:  If you fail to identify and analyze the obstacles, you don't have a strategy.  Instead, you have a stretch goal or a budget or a list of things you wish would happen.

The Hallmarks of Bad Strategy

...a growing profusion of bad strategy...


The term bad strategy was coined by Richard Rumelt in 2007 at a Washington, DC, seminar on national-security strategy. His role was to provide a business and corporate-strategy perspective. The participants expected, that his remarks would detail the seriousness and growing competence with which business strategy was created. Using words and slides, He told the group that many businesses did have powerful, effective strategies.

But he also saw a growing profusion of bad strategy. In the process, he created a list of the key hallmarks of bad strategy to four points:

• the failure to face the challenge
• mistaking goals for strategy
• bad strategic objectives
• fluff.

ACTION POINT: Know what bad strategy consists of and avoid it.

The Perils of Bad Strategy II

Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy.


Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to his teammates is “let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy.


Make no mistake: the creeping spread of bad strategy affects us all. Heavy with goals and slogans, governments have become less and less able to solve problems. Corporate boards sign off on strategic plans that are little more than wishful thinking. The US education system is rich with targets and standards but poor at comprehending and countering the sources of underperformance. The only remedy is we must demand good strategy.

ACTION POINT: Understand that strategy is more than slogans, broad goals and raw ambition.