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INTRODUCTION OVERWHELMING OBSTACLES

PART I GOOD AND BAD STRATEGY

  • The most basic idea of strategy is the application of strength against weakness.
  • Strength applied to the most promising opportunity.
  • There are advantages due to being a first mover: scale, scope, network effects, reputation, patents, brands, and hundreds more.
  • Natural sources of strength:
    1. Having a coherent strategy
    2. The creation of new strengths through subtle shifts in viewpoint

CHAPTER 1 GOOD STRATEGY IS UNEXPECTED

How Steve Jobs saved Apple

  • Jobs cut all of the desktop models—there were fifteen—back to one. He cut all portable and handheld models back to one laptop. He completely cut out all the printers and other peripherals. He cut development engineers. He cut software development. He cut distributors and cut out five of the company’s six national retailers. He cut out virtually all manufacturing, moving it offshore to Taiwan. With a simpler product line manufactured in Asia, he cut inventory by more than 80 percent. A new Web store sold Apple’s products directly to consumers, cutting out distributors and dealers.

Business 101 is surprising

General Schwarzkopf ’s strategy in Desert Storm

  • Schwarzkopf’s combined-arms left-hook strategy was so successful that the intense ground war lasted only one hundred hours.
  • Part 2 of FM 100-5 was dedicated to “Offensive Operations,” and on page 101 it described “envelopment” as the most important form of offensive maneuver—the U.S. Army’s “Plan A.”

Why “Plan A” remains a surprise

  • Since “Plan A” was available to anyone with twenty-five dollars to send to the U.S. Government Printing Office, it remains puzzling as to why “Plan A” was a surprise—a surprise not only to Iraq but also to talking-head military commentators on television and to most of the U.S. Congress.
  • 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.

CHAPTER 2 DISCOVERING POWER

David and Goliath is a basic strategy story

  • It is said that strategy brings relative strength to bear against relative weakness.

Discovering Wal-Mart’s secret

  • 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.

Marshall and Roche’s strategy for competing with the Soviet Union

  • But the power of that strategy derived from their discovery of a different way of viewing competitive advantage—a shift from thinking about pure military capability to one of looking for ways to impose asymmetric costs on an opponent.

CHAPTER 3 BAD STRATEGY

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

Is U.S. national security strategy just slogans?

  • “when you look closely at either the 2002 or 2006 documents, all you find are lists of goals and sub-goals, not strategies.”

How to recognize fluff

  • True expertise and insight is making a complex subject understandable.
  • Mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance.

Why not facing the problem creates bad strategy

  • The current fill-in-the-blanks template starts with a statement of “vision,” then a “mission statement” or a list of “core values,” then a list of “strategic goals,” then for each goal a list of “strategies,” and then, finally, a list of “initiatives.”
  • They do not identify and come to grips with the fundamental obstacles and problems that stand in the organization’s way.

Chad Logan’s 20/20 plan mistakes goals for strategy

  • “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. The managers and staff in this company have worked hard, and the transition to digital technologies was handled well. But there is a difference between working hard and having your eye on the prize and the will to win. Sure, 20/20 is a stretch, but the secret of success is setting your sights high. We are going to get moving and keep pushing until we get there.”
  • 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
  • A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives.

What’s wrong with a dog’s dinner of objectives?

  • Good strategy works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.
  • A long list of “things to do,” often mislabeled as “strategies” or “objectives,” is not a strategy.

How blue-sky objectives miss the mark

  • Good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp. Thus, the objectives a good strategy sets should stand a good chance of being accomplished, given existing resources and competence.
  • If the leader’s strategic objectives are just as difficult to accomplish as the original challenge, there has been little value added by the strategy.
  • Bad strategy is vacuous and superficial, has internal contradictions, and doesn’t define or address the problem.
  • Bad strategy generates a feeling of dull annoyance when you have to listen to it or read it.

CHAPTER 4 WHY SO MUCH BAD STRATEGY?

  • Bad strategy is the active avoidance of the hard work of crafting a good strategy.
  • When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence.
  • The siren song of template-style strategy—filling in the blanks with vision, mission, values, and strategies. This path offers a one-size-fits-all substitute for the hard work of analysis and coordinated action.
  • Pathway to bad strategy is New Thought—the belief that all you need to succeed is a positive mental attitude.

Strategy involves choice, and DEC’s managers can’t choose

  • The paradox arises if the three vote on the strategies in paired comparisons. In a first contest between Boxes and Chips, Alec and Beverly both prefer Boxes, so Boxes wins. Now, compare the winner of that vote (Boxes) to Solutions. In this second vote, Beverly and Craig both prefer Solutions, so Solutions wins. Thus, Solutions beat Boxes, which beat Chips. Given these outcomes, one would think that the group would prefer the two-round winner (Solutions) to the first-round loser (Chips). But, alas, in a contest between Solutions and Chips, Alec and Craig both prefer Chips, so Chips beats Solutions. This cycling of results, with no ending point, is Condorcet’s paradox.
  • There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations.

The path from charisma to transformational leadership to fill-in-the-blanks template-style strategy

  • Traditionally, charisma was associated with religious and political leaders, not CEOs or school principals.
  • Reduction of charismatic leadership to a formula.
  • 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.
  • Leadership and strategy may be joined in the same person, but they are not the same thing.
  • Leadership inspires and motivates self-sacrifice.
  • Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.

New Thought from Emerson to today and how it makes strategy seem superfluous

  • “The first step of making strategy real is figuring out the big ‘aha’ to gain sustainable competitive advantage—in other words, a significant, meaningful insight about how to win.”
  • Yes, Welch believed in stretch, but he also said “If you don’t have a competitive advantage, don’t compete.”;
  • The Protestant Reformation was founded on the principle that people did not need the Catholic Church to stand between them and the deity.
  • In the 1800s, starting with Ralph Waldo Emerson’s “transcendentalism,” American theology began to develop the idea that each person’s individual communication with God was possible because everyone has a spark of the divine within themselves, experienced as certain states of mind.
  • The next stage in the development of this idea was Mary Baker Eddy’s Christian Science, which held that a mind holding the correct thoughts and beliefs could draw on divine power to eliminate disease.
  • By 1890, this stream of religious philosophy had morphed into a set of mystical beliefs in the power of thought to affect the material world beyond the self. Called the New Thought movement, it combined religious sentiment with recommendations for worldly success.
  • The theory was that thinking about success leads to success. And that thinking about failure leads to failure.
  • Ford’s special genius was in materials, industrial engineering, and promotion.
  • The amazing thing about New Thought is that it is always presented as if it were new! And no matter how many times the same ideas are repeated, they are received by many listeners with fresh nods of affirmation. These ritual recitations obviously tap into a deep human capacity to believe that intensely focused desire is magically rewarded.
  • Nevertheless, the doctrine that one can impose one’s visions and desires on the world by the force of thought alone retains a powerful appeal to many people. Its acceptance displaces critical thinking and good strategy.

CHAPTER 5 THE KERNEL OF GOOD STRATEGY

The mixture of argument and action lying behind any good strategy

  • The kernel of a strategy contains three elements:
    1. A diagnosis that defines or explains the nature of the challenge.
    2. A guiding policy for dealing with the challenge.
    3. A set of coherent actions that are designed to carry out the guiding policy.
  • The core content of a strategy is a diagnosis of the situation at hand, the creation or identification of a guiding policy for dealing with the critical difficulties, and a set of coherent actions.

Diagnosing Starbucks, K–12 schools, the Soviet challenge, and IBM

  • Diagnosis is a judgment about the meanings of facts.
  • Because the challenge was ill-structured, a real world strategy could not be logically deduced from the observed facts. Rather, a diagnosis had to be an educated guess as to what was going on in the situation, especially about what was critically important.
  • a good strategic diagnosis does more than explain a situation—it also defines a domain of action.
  • Put simply, its primary value-added activity would shift from systems engineering to IT consulting, from hardware to software.

Guiding policies at Wells Fargo, IBM, and Stephanie’s market

  • It is “guiding” because it channels action in certain directions without defining exactly what shall be done.
  • 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.
  • 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.
  • In the real world, however, “maximize profit” is not a helpful prescription, because the challenge of making, or maximizing, profit is an ill-structured problem.

The president of the European Business Group hesitates to act

  • To have punch, actions should coordinate and build upon one another, focusing organizational energy.
  • INSEAD, brainchild of Harvard professor General Georges F. Doriot. - “Without action, the world would still be an idea.”
  • strategy is primarily about deciding what is truly important and focusing resources and action on that objective. It is a hard discipline because focusing on one thing slights another.

Incoherent action at Ford

  • 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.

  • “You cannot be competitive in the automobile industry unless you produce at least one million units per year on a platform.”

  • 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.

  • Centralization, decentralization, and Roosevelt’s strategy in WWII

    • we should seek coordinated policies only when the gains are very large
    • Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination.

PART II SOURCES OF POWER

CHAPTER 6 USING LEVERAGE

  • 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.

Anticipation by Toyota and insurgents in Iraq

  • In competitive strategy, the key anticipations are often of buyer demand and competitive reactions.

How Pierre Wack anticipated the oil crisis and oil prices

  • “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.”
  • anticipation simply means considering the habits, preferences, and policies of others, as well as various inertias and constraints on change.

Pivot points at 7-Eleven and the Brandenburg Gate

  • “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 in many food categories.”

Harold Williams uses concentration to make the Getty a world presence in art

  • 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
  • invested where his resources would make a large and more visible difference.

CHAPTER 7 PROXIMATE OBJECTIVES

Why Kennedy’s goal of landing on the moon was a proximate and strategic objective

  • 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.
  • 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 framework.

Phyllis Buwalda resolves the ambiguity about the surface of the moon

  • 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.
  • (a) increase their mobility, that is, increase the options open to them and decrease the freedom of operation of the opponent’s pieces;
  • (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).

A regional business school generates proximate objectives

  • What one single feasible objective, when accomplished, would make the biggest difference?

A helicopter pilot explains hierarchies of skills

  • Proximate objectives not only cascade down hierarchies; they cascade in time.
  • You can’t concentrate on the crisis if flying isn’t automatic

Why what is proximate for one organization is distant for another

  • Asking the CEO of such a firm to concentrate on opening offices in Europe may be pointless, because the company has not yet mastered the basics of “flying” the business.

CHAPTER 8 CHAIN-LINK SYSTEMS

  • Quality matters when quantity is an inadequate substitute.
  • in assessing a property’s potential, one should identify the limiting factors.
  • As an investor, one wants to find limiting factors that can be fixed, such as paint, rather than factors that cannot be fixed, such as highway noise.

Stuck systems at GM and underdeveloped countries

  • quality matching. That is, if you are in charge of one link of the chain, there is no point in investing resources in making your link better if other link managers are not.
  • Without corruption, it would be impossible to get around the stifling bureaucracy, but bureaucracy is a necessary counter to nepotism and a culture of corruption.
  • Expertise is not evenly distributed in the world.
  • first logical problem in chain-link situations is to identify the bottlenecks
  • second, and greatest, problem is that incremental change may not pay off and may even make things worse
  • little or no payoffs to incremental improvements in chain-link systems, but Marco avoided this problem by shutting down the normal system of local measurement and reward, refocusing on change itself as the objective.

IKEA shows how excellence is the flip side of being stuck

  • Because IKEA’s many policies are different from the norm and because they fit together in a coherent design, IKEA’s system has a chain-link logic.
  • adopting only one of these policies does no good—it adds expense to the competitor’s business without providing any real competition to IKEA.
  • IKEA teaches us that in building sustained strategic advantage, talented leaders seek to create constellations of activities that are chain-linked.
  • makes competitive imitation difficult.
  • What is especially fascinating is that both excellence and being stuck are reflections of chain-link logic.

CHAPTER 9 USING DESIGN

Hannibal defeats the Roman army in 216 B.C. using anticipation and a coordinated design of action in time and space

  • Properly organized and led, ordinary men could defeat skilled warriors who fought as individuals or as small bands.
  • There are furious debates over the best balance, in a strategy, between prior guidance and on-the-spot adaptation and improvisation, but there is always some form of prior guidance. By definition, winging it is not a strategy.
  • A fundamental ingredient in a strategy is a judgment or anticipation concerning the thoughts and/or behavior of others.
  • Finally, elements of Roman behavior were predictable because the battle developed quickly, giving the Romans little time to study the situation and no time to learn new lessons and alter their methods.

How a design-type strategy is like a BMW

  • You have to adjust the design—the strategy—to put more smile per dollar on a driver’s face than she can get from competing products

Designing the Voyager spacecraft at JPL

  • I had to learn enough about all the subsystems and their possible interactions, and hold it all in my mind, in order to imagine a configuration that might be effective.

The trade-off between resources and tight configuration

  • given existing capabilities, to get more performance out of a system you have integrate its components and subsystems more cleverly and more tightly.

How success leads to potent resources that, in turn, induce laxity and decline

  • 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.
  • Its important lesson is that we should learn design-type strategy from an upstart’s early conquests rather than from the mature company’s posturing.
  • Study how Bill Gates outsmarted the giant IBM or how Nucor became a leader in the declining steel industry and you will learn design-type strategy.

Design shows itself as order imposed on chaos—the example of Paccar’s heavy-truck Business

  • no one will believe you have the longest-lasting trucks until they have already lasted a long time on the road.
  • designing a very high-quality piece of machinery is not a textbook problem. company accumulates these nuggets of wisdom by providing a good, stable place to work for talented engineers.
  • difficult to convince buyers to pay an up-front premium for future savings, even if the numbers are clear.
  • Good strategy is design, and design is about fitting various pieces together so they work as a coherent whole.

CHAPTER 10 FOCUS

A class struggles to identify Crown Cork & Seal’s strategy

  • To begin identifying a company’s strategy, it is usually most helpful to examine the competitive environment. That is, to look at how the major competitors make their livings.
  • Sometimes they are hiding the truth, sometimes they are misstating it, and sometimes they have taken a position as leader without really knowing the reasons for their company’s success.

Working back from policies to strategy

  • I have lectured on how to tackle seemingly formless questions like this. The first trick is to replace general nouns with specific examples.
  • “Crown does short runs,” exclaims Julia, an entrepreneur. “The majors accept long runs of standard items to avoid costly changeovers. Crown does the opposite and has a focus on shorter runs.”

The particular pattern of policy and segmentation called “focus”

  • “Crown. By focusing on short runs, Crown avoids the captive squeeze. Instead of one customer with several competing suppliers, Crown is a supplier with several customers per plant. Going for long runs made the majors captive. Short runs turn the situation around. Crown hasn’t given up its bargaining power like the captives have.”
  • attacking a segment of the market with a business system supplying more value to that segment than the other players can—is called focus.
  • coordination of policies that produces extra power through their interacting and overlapping effects.
  • application of that power to the right target.

Why the strategy worked

  • strategy is about focus, and most complex organizations don’t focus their resources. they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.

CHAPTER 11 GROWTH

The all-out pursuit of size almost sinks Crown

  • its carefully designed strategy that, through a coordinated set of policies, focused the company on products and buyers where the customer’s bargaining power was lessened.

A noxious adviser at Telecom Italia

  • But unless you can buy companies for less than they are worth, or unless you are specially positioned to add more value to the
  • target than anyone else can, no value is created by such expansion

Healthy growth

  • Healthy growth is not engineered. It is the outcome of growing demand for special capabilities or of expanded or extended capabilities.
  • It is the outcome of a firm having superior products and skills.

CHAPTER 12 USING ADVANTAGE

  • It is the leader’s job to identify which asymmetries are critical—which can be turned into important advantages.

Advantage in Afghanistan and in business

  • In Afghanistan, the United States is “wrestling the gorilla” because it has allowed itself to be drawn into a conflict in support of an almost nonexistent ally and where advantage lies with the side with the most patience and with the least sensitivity to casualties and collateral damage.
  • Warren Buffett has said that he evaluates a company by looking for “sustainable competitive advantage.”

Stewart and Lynda Resnick’s serial entrepreneurship

  • providing more value you avoid being a commodity

What makes a business “interesting”

  • A small nut farmer can’t afford the investments needed to develop the market or do research on yields or do efficient processing.
  • large enough to earn back the costs of research on yields and quality.
  • realized that if we could stimulate the demand for almonds and pistachios, would be a real benefit.
  • takes seven to ten years for newly planted trees to mature. time to invest in planting, branding, processing, and merchandising. as demand grew, aggressively built nut-processing capacity.

The puzzle of the silver machine

Why you cannot get richer by simply owning a competitive advantage

  • The conundrum disappears when you carefully distinguish between competitive advantage and financial gain
  • The silver machine’s advantage gives it value, but the advantage isn’t interesting because there is no way for an owner to engineer an increase in its value.
  • eBay’s competitive advantage lies in its unrivaled ability to offer the least expensive, most effective solution to just about anyone who wishes to buy or sell a personal item online.

What bricklaying teaches us about deepening advantage

  • improvements come from reexamining the details of how work is done, not just from cost controls or incentives.

Broadening the Disney brand

  • special skills and resources that underlie a competitive advantage. In other words, “Build on your strengths.”
  • no one goes to a movie because it is a Sony Pictures Studios product or because it was made by Paramount. Those brands have some power in financial circles and in distribution channels, but none with the consumer.

The red tide of pomegranate juice

  • Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems.

Oil fields, isolating mechanisms, and being a moving target

  • obvious approach to strengthening isolating mechanisms is working on stronger patents, brand-name protections, and copyrights.
  • continuing streams of innovations in methods and products are more difficult to imitate when they are, themselves, based on streams of proprietary knowledge.