Book Notes – Good Strategy / Bad Strategy

Introduction: Overwhelming Obstacles

Good strategy almost always looks simple and obvious.

It identifies the one or two critical pivot points in a situation and designs a way of coordinating resource and action to overcome them and make forward progress.

Strategy is not goal setting. Strategy must bridge the gap between ambition and action. Good strategy has a kernel that makes this bridge:

• Diagnosis: Acknowledgement of challenges
• Guiding Policy: A signpost of the direction to take
• Coherent Action: A coordinated set of policies, resource commitments and actions

Chapter 1: Good Strategy is Unexpected

Recognising windows of opportunity and acting on them is key strategic thinking.

Most complex organisations spread rather than concentrate resources.

Strategy is at least as much about what an organisation doesn’t do as it is about what it does.

Chapter 2: Discovering Power

Strategy brings relative strength to bear against relative weakness.

The discovery of a hidden power can arise through a shift in perspective.

You can compete indirectly by using your relative advantage to impose asymmetric costs on an opponent.

The oft-forgotten cost of decentralisation is lost coordination across units.

Chapter 3: Bad Strategy

Bad strategy is not simply the absence of good strategy. It is actively written “strategy” plans that are misleading or of little value.

Fluff: Superficial restatement of the obvious sprinkled with buzzwords and esoteric concepts to create the illusion of high-level thinking. A hallmark of true expertise and insight is making a complex subject understandable.

Failure to face the challenge: When you cannot define the challenge you cannot evaluate a strategy or improve it.

Mistaking goals with strategy: Many bad strategies are just statements of the desired state of affairs rather than plans for overcoming obstacles. You end up with a list of things you wish would happen; not a way of making them happen.

Bad strategic objectives: Objectives that fail to address critical issues or when they are impracticable based on the skills and resources that are available.

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

Chapter 4: Why So Much Bad Strategy?

Bad strategy is not absence or miscalculation but an active avoidance of analysis, logic and choice.

Unwillingness to choose: Any coherent strategy pushes resources towards some end and away from others. In organisations, the longer a pattern of activity is maintained the more it becomes entrenched and the more its supporting resource allocations are taken to be entitlements. It takes enormous political will and the exercise of great centralised power to overcome the present levels of institutional resistance to change.

Template-style strategy: Leadership is not strategy. Template strategy often is reduced to the leader having a vision, inspiring the people to sacrifice for the good of the organisation and “empowering” people to accomplish the vision. Without clear strategy people don’t know what pursue and accomplish.

New thought: “Think it and it will be!” While work in the area provides a counterweight to bureaucratic and rational-action views of management, believing that thinking only of success will lead to success displaces the critical thinking necessary for good strategy.

Chapter 5: The Kernel of Good Strategy

The Kernel is a simple plain English description of the strategy – no sorting between visions, missions, goals, etc – and not split by business, corporate and product strategies.

The Diagnosis simplifies the complexity of reality by identifying the critical aspects of the situation. At a minimum it names or classifies the situation, linking facts to patterns and suggesting where to focus.

Guiding Policy is an overall approach that directs and constrains action without fully defining its context. It’s more about ruling out a vast array of possible actions.

Coherent Action is a set of steps that are coordinated, coherent and makes painful choices about where resource is allocated. Actions must not be in conflict or unrelated. They should amplify one another.

Strategic coordination is not ad-hoc mutual adjustment; it is coordinated action and coherence imposed on a system by policy and design through centralised power. Decentralised decision-making fails when either the costs or benefits of actions are not borne by the decentralised actors. Coordination is costly because it fights against the gains of specialisation.

Chapter 6: Using Leverage

Leverage is power created by focusing resource at the right moment on a pivotal objective. You can create it with a mixture of:

• Anticipation: where you have better information, or a better interpretation, to act at the right time.
• Pivot points: where you understand and capitalise on the critical aspects that amplify success.
• Concentration: where you amass enough resource against a pivot point to positive effect.

Chapter 7: Proximate Objectives

The more complex the situation, the poorer your foresight will be.

Proximate objectives are ones that are close enough to be feasible. The resolve ambiguity by taking a strong position with an aim of creating good optionality.

Chapter 8: Chain-link Systems

A system has chain-link logic when its performance is limited by its weakest subunit, or “link”.

In systems where each link is managed separately the system can get stuck in a low effectiveness state. There is no point investing resources in making your link better if other link managers are not.

There are little or no payoffs to incremental improvements in chain-link systems. Local measurement and reward must be shut down to focus on the change itself as the objective. It takes leadership and the willingness to absorb short-term losses in the quest for future gains.

If you have a special skill or insight at removing limiting factors, then you can be very successful.

Chapter 9: Using Design

Strategy is more design than analytical decision-making; there is rarely a clear set of alternatives to choose from.

A strong strategy creates a system where the whole is greater than the sum of its parts, and where the whole is designed to “fit” in its context.

The fewer the resources, the tighter the integration necessary between subsystems.

Chapter 10: Focus

Focus is the coordination of policies that produces extra power through the interacting and overlapping effects; and the application of that power to the right target.

Chapter 11: Growth

“Grow by x%” is not a strategy. Growth is the outcome of a successful strategy. Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities.

Chapter 12: Using Advantage

Changes to increase competitive advantage:

• Deepen advantage: increase value to buyers and/or decrease costs
• Broaden advantage: apply it to new or adjacent fields
• Create higher demand
• Strengthen isolating mechanics (moats)

Chapter 13: Using Dynamics

Look for and sense swells of waves of change. The mix of forces is richer than just skill and luck. Think about second-order effects.

“Above the details” leadership only works in stable times. In times of change leaders must understand the fundamentals and be able to question the experts.

Signs of waves:

• Rising fixed costs may force an industry to consolidate because only largest can absorb the increases.
• Deregulation always subsidises some buyers at the expense of others. Regulated companies have lots of inertia and are slow to respond to change.
• Predictable biases fail in counterintuitive situations. Future winners may not look like the current apparent winners.
• Incumbent response: incumbents will resist change that threatens their current skills and position.
• Attractor states: theoretical systems view of how an industry “should” work and identification of accelerants and impediments.

Chapter 14: Inertia and Entropy

Inertia is the resistance to adapt to changing circumstances.

• Inertia of routine limits action to the familiar and shapes perceptions. Fix by hiring from others with better methods; use consultants or redesign routines.
• Inertia of culture like routine, but more about wider context than daily action. Fix by simplifying and stopping complex routines. Fragment units to expose larger number of smaller units to scrutiny; triage (close, repair or use as nuclei); recompose with new overlay of coordinating mechanisms.
• Inertia by proxy is caused by customers’ lack of agility. Fixed when adapting to changed circumstances is more important than old profit streams.

Entropy is the natural direction of systems towards disorder.

Leaders must constantly work on maintaining purpose, form and methods, even if there are no changes in strategy or competition.

Chapter 15: Putting it Together

Nvidia case study.

Nvidia induced less coordinated responses by 3dfx through a carefully crafted fast release cycle.

Chapter 16: The Science of Strategy

Good strategy deals with the edge between the known and the unknown.

Like a scientific prediction, strategy is an educated prediction of how the world works. Its ultimate worth is determined by its results, not the strategy itself.

Anomalies in results can be a sign of opportunity. The anomalies are not in nature but in the mind of the acute observer.

Engineers start with complexity and craft certainty.

Chapter 17: Using Your Head

Attention is like a flashlight beam, illuminating one subject only to darken another. Like navigating in the dark, you need to frequently reassess the landscape and then refocus on what is both important and actionable.

Lots of conceptual tools exist to help you get oriented, but mechanical tools don’t create good ideas; insight does.

When coming up with strategy ideas we often stop at the first idea. Our minds unconsciously dodge the painful work of questioning our early judgements. Being able to think about and question your own thinking is more important than any strategy framework.

• Ensure your thinking expands to all three kernel elements.
• Shift attention to why a think is being done to gain new perspective.
• Try to destroy your own ideas to ensure they are actually good.
• Privately commit to a judgement and reflect once it has happened to see what you missed.

Chapter 18: Keeping Your Head

Social herding presses us to think that everything is OK because everyone else is saying so. The inside view presses us to ignore the lessons of other times and other places, believing that our company, nation, venture or era is different.

It is important to push back against these biases.

You can do this by paying attention to real-world data that refutes the echo-chamber chanting of the crowd, and by learning the lessons taught by history and by other people in other places.