Good Strategy Bad Strategy

🚀 The Book in 3 Sentences

This book is about embracing the core of what a strategy is. It differentiates between strategy and wishful thinking, masquerading as strategy. It defines what a good strategy is with examples.

🎨 Impressions

I thought the book's first part was brilliant, but later on, I felt it somewhat repeated itself a lot.

The book dealt a lot with the analysis of competition, which I did not estimate was such a big part of the good strategy.

A good strategy is understanding the challenges and being correct in identifying what the challenge is.

✍️ My Top Quotes

Nelson’s challenge was that he was outnumbered. His strategy was to risk his lead ships in order to break the coherence of his enemy’s fleet. With coherence lost, he judged, the more experienced English captains would come out on top in the ensuing melee. Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain.
Simply being ambitious is not a strategy. In 2008, Lehman Brothers ended its 158 years as an investment bank with a crash that sent the global financial system into a tailspin.
Bad strategy tends to skip over pesky details such as problems.
The purpose of this book is to wake you up to the dramatic differences between good strategy and bad strategy and to give you a leg up toward crafting good strategies.
A good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action.
Bad strategy is more than just the absence of good strategy. Bad strategy has a life and logic of its own, a false edifice built on mistaken foundations.
Jobs about his approach to turning Apple around. He explained both the substance and coherence of his insight with a few sentences: The product lineup was too complicated and the company was bleeding cash. A friend of the family asked me which Apple computer she should buy. She couldn’t figure out the differences among them and I couldn’t give her clear guidance, either. I was appalled that there was no Apple consumer computer priced under $2,000. We are replacing all of those desktop computers with one, the Power Mac G3. We are dropping five of six national retailers—meeting their demand has meant too many models at too many price points and too much markup.
Most complex organizations spread rather than concentrate resources, acting to placate and pay off internal and external interests. Thus, we are surprised when a complex organization, such as Apple or the U.S. Army, actually focuses its actions. Not because of secrecy, but because good strategy itself is unexpected.
Half of what alert participants learn in a strategy exercise is to consider the competition even when no one tells you to do it in advance.
First used in grocery supermarkets, bar-code scanners at retail checkout stations are now ubiquitous. Mass merchandisers began to use them in the early 1980s. Most retailers saw the bar-code scanner as a way of eliminating the cost of constantly changing the price stickers on items. But Wal-Mart went further, developing its own satellite-based information systems. Then it used this data to manage its inbound logistics system and traded it with suppliers in return for discounts.
“A full-line discount store needs a population base of at least 100,000.” I repeat his phrase, “The Wal-Mart store needs to be part of the network,” while drawing a circle around the word “store.” Then I wait. With luck, someone will get it. As one student tries to articulate the discovery, others get it, and I sense a small avalanche of “ahas,” like a pot of corn kernels suddenly popping. It isn’t the store; it is the network of 150 stores. And the data flows and the management flows and a distribution hub. The network replaced the store. A regional network of 150 stores serves a population of millions! Walton didn’t break the conventional wisdom; he broke the old definition of a store. If no one gets it right away, I drop hints until they do.
Use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.
Post-WWII period, the Soviet Union murdered upward of 20 million people, its own citizens and others under its control, a grisly improvement over the 40 million executed, purposefully starved, and worked to death in the 1917–48 period.
To detect a bad strategy, look for one or more of its four major hallmarks: • Fluff. Fluff is a form of gibberish masquerading as strategic concepts or arguments. It uses “Sunday” words (words that are inflated and unnecessarily abstruse) and apparently esoteric concepts to create the illusion of high-level thinking. • Failure to face the challenge. Bad strategy fails to recognize or define the challenge. When you cannot define the challenge, you cannot evaluate a strategy or improve it. • Mistaking goals for strategy. Many bad strategies are just statements of desire rather than plans for overcoming obstacles. • Bad strategic objectives. A strategic objective is set by a leader as a means to an end. Strategic objectives are “bad” when they fail to address critical issues or when they are impracticable.
The scandal took its auditor, Arthur Andersen, down as well. (The accountant’s consulting arm, Andersen Consulting, was renamed Accenture.) A systematic market for trading bandwidth has yet to develop.
If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.
DARPA’s strategy is more than a general direction. It includes specific policies that guide its everyday actions. For example, it retains program managers for only four to six years to limit empire building and to bring in fresh talent. The expectation is that a new program manager will be willing to challenge the ideas and work of predecessors. In addition, DARPA has a very limited investment in overhead and physical facilities in order to prevent entrenched interests from thwarting progress in new directions.
A strategy is like a lever that magnifies force. Yes, you might be able to drag a giant block of rock across the ground with muscles, ropes, and motivation. But it is wiser to build levers and wheels and then move the rock.
Strategic objectives should address a specific process or accomplishment, such as halving the time it takes to respond to a customer, or getting work from several Fortune 500 corporations.
Northwest. His planning committee’s strategic plan contained 47 “strategies” and 178 action items. Action item number 122 was to “create a strategic plan.” As another example, the Los Angeles Unified School District’s strategic plan for “high-priority schools” (discussed on the next page) contained 7 “strategies,” 26 “tactics,” and 234 “action steps,” a true dog’s dinner of things to do. This pattern is all too common in city, school district, and nonprofit strategy work, as well as in some business firms. Blue-Sky Objectives The
The second form of bad strategic objectives is one that is “blue sky.” A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action,
By contrast, a blue-sky objective is usually 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.
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.
One would hope that the experience of North Korea would have cured people of the idea that forcing everyone to believe in and value the same things is the road to high performance.
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.
First, if one has a policy of resolving conflict by adopting all the options on the table, there will be no incentive for anyone to develop and sharpen their arguments in the first place.
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.
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.
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
To concentrate on an objective—to make it a priority—necessarily assumes that many other important things will be taken care of.
A system has a chain-link logic when its performance is limited by its weakest subunit, or “link.” When there is a weak link, a chain is not made stronger by strengthening the other links.
Quality matters when quantity is an inadequate substitute.
Conversely, the excellence achieved by a well-managed chain-link system is difficult to replicate.
It is often said that a strategy is a choice or a decision. The words “choice” and “decision” evoke an image of someone considering a list of alternatives and then selecting one of them. There is, in fact, a formal theory of decisions that specifies exactly how to make a choice by identifying alternative actions, valuing outcomes, and appraising probabilities of events.
The lesson I took from systems engineering at JPL was that performance is the joint outcome of capability and clever design.
A very powerful resource position produces profit without great effort, and it is human nature that the easy life breeds laxity. 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.
People tend to be more myopic than economic theory would suggest.
Crown hasn’t given up its bargaining power like the captives have.”
As Frank Gilbreth pointed out in 1909, bricklayers had been laying bricks for thousands of years with essentially no improvement in tools and technique.5 By carefully studying the process, Gilbreth was able to more than double productivity without increasing anyone’s workload. By moving the supply pallets of bricks and mortar to chest height, hundreds or thousands of separate lifting movements per day by each bricklayer were avoided. By using a movable scaffold, skilled masons did not have to waste time carrying bricks up ladders. By making sure that mortar was the right consistency, masons could set and level a brick with a simple press of the hand instead of the time-honored multiple taps with a trowel.
Extending an existing competitive advantage brings it into new fields and new competitions.
The simplest form of transition is triggered by substantial increases in fixed costs, especially product development costs.
Bell Labs; the inventor of the transistor, the C programming language, and Unix;
Inertia by proxy disappears when the organization decides that adapting to changed circumstances is more important than hanging on to old profit streams.
Entropy is a great boon to management and strategy consultants. Despite all the high-level concepts consultants advertise, the bread and butter of every consultant’s business is undoing entropy—cleaning up the debris and weeds that grow in every organizational garden.
Call this a hump chart. Whenever you can assign profit or gain to individual products, outlets, areas, segments, or any other portion of the total, you can build a hump chart.
You will also glimpse almost every building block of good strategy: intelligent anticipation, a guiding policy that reduced complexity, the power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by the inertia and disarray of rivals.
Good strategy is built on functional knowledge about what works, what doesn’t, and why. Generally available functional knowledge is essential, but because it is available to all, it can rarely be decisive
This is the centerpiece of scientific thinking—the idea of refutation. Unless an idea can possibly be proved false by observable fact, it is not scientific.
Started, became a living experiment. One of the most important resources a business can have is valuable privileged information—that is, knowing something that others do not.
Being strategic is being less myopic—less shortsighted—than others. You must perceive and take into account what others do not, be they colleagues or rivals. Being less myopic is not the same as pretending you can see the future.