Good Strategy Bad Strategy by Richard Rumelt
Juan Carlos Zambrano
Gerente de Finanzas @ Tecnofarma Bolivia | Coaching ontologico
INTRODUCTION OVERWHELMING OBSTACLES
Despite the roar of voices wanting to equate strategy with ambition, leadership, “vision,” planning, or the economic logic of competition, strategy is none of these. The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.
A leader’s most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them. In contexts ranging from corporate direction to national security, strategy matters. Yet we have become so accustomed to strategy as exhortation that we hardly blink an eye when a leader spouts slogans and announces high-sounding goals, calling the mixture a “strategy.”
A good strategy does more than urge us forward toward a goal or vision. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. And the greater the challenge, the more a good strategy focuses and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.
Unfortunately, good strategy is the exception, not the rule. And the problem is growing. More and more organizational leaders say they have a strategy, but they do not. Instead, they espouse what I call bad strategy. Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to 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.
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, when 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.
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. Indeed, this is the most common complaint about “strategy.” Echoing many others, one top executive told me, “We have a sophisticated strategy process, but there is a huge problem of execution. We almost always fall short of the goals we set for ourselves.” If you have followed my line of argument, you can see the reason for this complaint. 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.
Executives who complain about “execution” problems have usually confused strategy with goal setting. When the “strategy” process is basically a game of setting performance goals—so much market share and so much profit, so many students graduating high school, so many visitors to the museum—then there remains a yawning gap between these ambitions and action. Strategy is about how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests. Of course, a leader can set goals and delegate to others the job of figuring out what to do. But that is not strategy. If that is how the organization runs, let’s skip the spin and be honest—call it goal setting.
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. The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip. Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.
Once you gain a facility with the structure and fundamentals of a good strategy, you will develop the parallel ability to detect the presence of bad strategy. Just as you do not need to be a director to detect a bad movie, you do not need economics, finance, or any other abstruse special knowledge to distinguish between good and bad strategy. For example, looking at the U.S. government’s “strategy” for dealing with the 2008 financial crisis, you will see that essential elements are missing. In particular, there was no official diagnosis of the underlying malady. So, there can be no focus of resources and actions on a cure. There has only been a shift of resources from the public to the banks. You do not need a PhD in macroeconomics to make this judgment—it follows from understanding the nature of good strategy itself.
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. Bad strategy may actively avoid analyzing obstacles because a leader believes that negative thoughts get in the way. Leaders may create bad strategy by mistakenly treating strategy work as an exercise in goal setting rather than problem solving. Or they may avoid hard choices because they do not wish to offend anyone—generating a bad strategy that tries to cover all the bases rather than focus resources and actions.
The creeping spread of bad strategy affects us all. Heavy with goals and slogans, the national government has become less and less able to solve problems. Corporate boards sign off on strategic plans that are little more than wishful thinking. Our education system is rich with targets and standards, but poor in comprehending and countering the sources of underperformance. The only remedy is for us to demand more from those who lead. More than charisma and vision, we must demand good strategy.
PART I GOOD AND BAD STRATEGY
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 midlevel framework misses two huge, incredibly important natural sources of strength:
These two essential aspects of good strategy are explored in chapter 1, “Good Strategy Is Unexpected,” and chapter 2, “Discovering Power.”
The leader of an organization lacking a good strategy may simply believe that strategy is unnecessary. But more often the lack is due to the presence of bad strategy. Like weeds crowding out the grass, bad strategy crowds out good strategy. Leaders using bad strategies have not just chosen the wrong goals or made implementation errors. Rather, they have mistaken views about what strategy is and how it works. Chapter 3, “Bad Strategy,” presents evidence for the existence of bad strategy and explains its hallmarks.
Having marked the nature of good and bad strategy, chapter 4 answers the obvious question: “Why So Much Bad Strategy?” Chapter 5, “The Kernel of Good Strategy,” provides an analysis of the logical structure of a good strategy—a structure that acts as a guide on reasoning and a check against generating bad strategy.
CHAPTER ONE GOOD STRATEGY IS UNEXPECTED
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 genuine 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.
CHAPTER TWO DISCOVERING POWER
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.
CHAPTER THREE BAD STRATEGY
Bad strategy is not simply the absence of good strategy. It grows out of specific misconceptions and leadership dysfunctions. Once you develop the ability to detect bad strategy, you will dramatically improve your effectiveness at judging, influencing, and creating strategy. To detect a bad strategy, look for one or more of its four major hallmarks:
Bad strategy, I explained, is not the same thing as no strategy or strategy that fails rather than succeeds. Rather, it is an identifiable way of thinking and writing about strategy that has, unfortunately, been gaining ground. Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to hide these failings.
FLUFF
Fluff is superficial restatement of the obvious combined with a generous sprinkling of buzzwords. Fluff masquerades as expertise, thought, and analysis. As a simple example of fluff in strategy work, here is a quote from a major retail bank’s internal strategy memoranda: “Our fundamental strategy is one of customer-centric intermediation.” The Sunday word “intermediation” means that the company accepts deposits and then lends them to others. In other words, it is a bank. The buzz phrase “customer-centric” could mean that the bank competes by offering depositors and lenders better terms or better service. But an examination of its policies and products does not reveal any distinction in this regard. The phrase “customer-centric intermediation” is pure fluff. Pull off the fluffy covering and you have the superficial statement “Our bank’s fundamental strategy is being a bank.”
FAILURE TO FACE THE PROBLEM
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 a strategy’s quality, you cannot reject a bad strategy or improve a good one.
BAD STRATEGIC OBJECTIVES
If you are a midlevel manager, your boss sets your goals. Or, if you work in an enlightened company, you and your boss negotiate over your goals. In either setting, it is natural to think of strategies as actions designed to accomplish specific goals. However, taking this way of thinking into a top-level position is a mistake.
Being a general manager, CEO, president, or other top-level leader means having more power and being less constrained. Effective senior leaders don’t chase arbitrary goals. Rather, they decide which general goals should be pursued. And they design the subgoals that various pieces of the organization work toward. Indeed, the cutting edge of any strategy is the set of strategic objectives (subgoals) it lays out. One of the challenges of being a leader is mastering this shift from having others define your goals to being the architect of the organization’s purposes and objectives.
CHAPTER FOUR WHY SO MUCH BAD STRATEGY?
Given the almost universal recognition of the importance of strategy, it is natural to ask “Why is bad strategy so common?” To begin, bad strategy is not miscalculation. I am intimately familiar with the myriad mistakes and errors that can be made in assessing the competition, one’s own resources, the lessons of the past, and the opportunities and problems presented by change and innovation.
However, after years of working with companies and teaching strategy to executives and MBA students, I have found that more training in these fundamental areas barely puts a dent in the proclivity to create bad strategy. 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.
Not miscalculation, bad strategy is the active avoidance of the hard work of crafting a good strategy. One common reason for choosing avoidance is the pain or difficulty of choice. When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence. A second pathway to bad strategy is 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. A third pathway to bad strategy is New Thought—the belief that all you need to succeed is a positive mental attitude. There are other pathways to bad strategy, but these three are the most common. Understanding how and why they are taken should help you guide your footsteps elsewhere.
THE UNWILLINGNESS OR 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 amorphous strategy is the result.
There has been a lot of ink spilled on the inner logic of competitive strategy and on the mechanics of advantage. But the essential difficulty in creating strategy is not logical; it is choice itself. Strategy does not eliminate scarcity and its consequence—the necessity of choice. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others. There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations.
When a strategy works, we tend to remember what was accomplished, not the possibilities that were painfully set aside.
Strategies focus resources, energy, and attention on some objectives rather than others. Unless collective ruin is imminent, a change in strategy will make some people worse off. Hence, there will be powerful forces opposed to almost any change in strategy. This is the fate of many strategy initiatives in large organizations. There may be talk about focusing on this or pushing on that, but at the end of the day no one wants to change what they are doing very much. When organizations are unable to make new strategies—when people evade the work of choosing among different paths into the future—then you get vague mom-and-apple-pie goals that everyone can agree on. Such goals are direct evidence of leadership’s insufficient will or political power to make or enforce hard choices. Put differently, universal buy-in usually signals the absence of choice.
In organizations and politics, the longer a pattern of activity is maintained, the more it becomes entrenched and the more its supporting resource allocations.
TEMPLATE-STYLE STRATEGY
Oddly enough, the study of charisma has led to a common type of bad strategy. The path starts with the recognition that truly inspirational leaders—ranging from Moses to Churchill to Gandhi to Martin Luther King Jr.—occupy a different space than leaders who draw authority from birth or organizational rank. The path then passes through the dry baked clay of academic sociology before cutting through the shifting sand dunes of management consulting.
Not everyone was drawn to this formulation. Peter Drucker, one of the foremost thinkers about management, said, “Effective leadership doesn’t depend on charisma. Dwight Eisenhower, George Marshall, and Harry Truman were singularly effective leaders, yet none possessed any more charisma than a dead mackerel.… Charisma does not by itself guarantee effectiveness as a leader.”
The key innovation in this growing stream has been the reduction of charismatic leadership to 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. Some experts place more emphasis on the moral qualities of the leader, others on commitment, and others on the leader being intellectually stimulating.
This conceptual scheme has been hugely popular with college-educated people who have to manage other college-educated people. It satisfies their sense that organizations should somehow be forced to change and improve while also satisfying their contradictory sense that it is awkward to tell other people what to do.
Whatever you think about this definition of leadership, a problem arises when it is confused with strategy. Leadership and strategy may be joined in the same person, but they are not the same thing. Leadership inspires and motivates self-sacrifice. Change, for example, requires painful adjustments, and good leadership helps people feel more positively about making those adjustments. Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished.
CHAPTER FIVE THE KERNEL OF GOOD STRATEGY
Good strategy is coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure I call 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.
The kernel of a strategy contains three elements:
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 doctor’s specific prescriptions for diet, therapy, and medication are the set of coherent actions to be taken.
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.
I call this combination of three elements the kernel to emphasize that it is the bare-bones center of a strategy—the hard nut at the core of the concept. It leaves out visions, hierarchies of goals and objectives, references to time span or scope, and ideas about adaptation and change. All of these are supporting players. They represent ways of thinking about strategy, stimulating the creation of strategies, energizing groups of people, denoting specific sources of advantage, communicating, summarizing, and analyzing strategies, and so on. 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. I will explore the three elements of the kernel one by one.
THE DIAGNOSIS
After my colleague John Mamer stepped down as dean of the UCLA Anderson School of Management, he wanted to take a stab at teaching strategy. To acquaint himself with the subject, he sat in on ten of my class sessions. Somewhere around class number seven we were chatting about pedagogy and I noted that many of the lessons learned in a strategy course come in the form of the questions asked as study assignments and asked in class. These questions distill decades of experience about useful things to think about in exploring complex situations. John gave me a sidelong look and said, “It looks to me as if there is really only one question you are asking in each case. That question is ‘What’s going on here?’?”
John’s comment was something I had never heard said explicitly, but it was instantly and obviously correct. 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 can 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.
THE GUIDING POLICY
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.
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.
You may correctly observe that many other people use the term “strategy” for what I am calling the “guiding policy.” I have found that 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.
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.
COHERENT ACTION
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.
Moving to Action
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
Coherence
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 or advantage available in strategy.
PART II 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.
This section of the book explores 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 possibly treat. The sources of power (and trouble) highlighted here 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 I believe are fundamental but that have not been given as much attention as they deserve.
CHAPTER SIX USING 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. I call this source of power leverage.
ANTICIPATION
The strategist may 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.
PIVOT POINTS
To achieve leverage, the strategist must have insight into a pivot point that will magnify the effects of focused energy and resources.
CONCENTRATION
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.
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.
CHAPTER SEVEN 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 1960s 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 strategic objective.
RESOLVING AMBIGUITY
An important duty of any leader is to absorb a large part of that complexity and ambiguity, passing on to the organization a simpler problem—one that is solvable. Many leaders fail badly at this responsibility, announcing ambitious goals without resolving a good chunk of ambiguity about the specific obstacles to be overcome. To take responsibility is more than a willingness to accept the blame. It is setting proximate objectives and handing the organization a problem it can actually solve.
TAKING A STRONG POSITION AND CREATING OPTIONS
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.
HIERARCHIES OF OBJECTIVES
In organizations of any size, high-level proximate objectives create goals for 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.
CHAPTER EIGHT CHAIN-LINK SYSTEMS
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. If a building contractor finds that her two-ton truck is on another job, she may easily substitute two one-ton trucks to carry landfill. On the other hand, if a three-star chef is ill, no number of short-order cooks is an adequate replacement. One hundred mediocre singers are not the equal of one top-notch singer. Keeping children additional hours or weeks in broken schools—schools that can neither educate nor control behavior—does not help and probably increases resentment and distrust.
GETTING STUCK
There are portions of organizations, and even of economies, that are chain-linked. When each link is managed somewhat separately, the system can get stuck in a low-effectiveness state. The problem arises because of quality matching.1 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.
To make matters even more difficult, striving for higher quality in just one of the linked units may make matters worse! Higher quality in a unit requires investments in better resources and more expensive inputs, including people. Since these efforts to improve just one linked unit will not improve the overall performance of the chain-linked system, the system’s overall profit actually declines. Thus, the incentive to improve each unit is dulled.
GETTING UNSTUCK
Expertise is not evenly distributed in the world. If you seek the most efficient automobile makers, you must travel to the Kanto plain in Japan, where they cluster.
EXCELLENCE
As we learn from Marco Tinelli, turning around a chain-link system requires direct leadership and design. Conversely, the excellence achieved by a well-managed chain-link system is difficult to replicate.
CHAPTER NINE USING DESIGN
THE FATHER OF STRATEGY
To begin at the beginning, armies, together with the authority structures supporting them, first arose in the Bronze Age in parallel with complex urban societies. Just as humans discovered that organized agriculture paid great dividends, they also found that organizing and coordinating the actions of fighters greatly magnified their effect. Properly organized and led, ordinary men could defeat skilled warriors who fought as individuals or as small bands.
The classic example of design in battle strategy, one that is still studied today, is Hannibal’s victory over the Roman army at Cannae in 216 B.C.
The concept of strategy has many faces, and there are some we do not see in the story of Cannae.
However, what we do see in the story of Cannae are three aspects of strategy in bold relief, presented in their purest and most essential forms—premeditation, the anticipation of others’ behavior, and the purposeful design of coordinated actions.
领英推荐
THE PARTS OF A WHOLE
Business and corporate strategy deal with large-scale design-type problems. The greater the challenge, or the higher the performance sought, the more interactions have to be considered. Think, for instance, of what it takes to give a BMW 3 Series car that “driving machine” feel. The chassis, steering, suspension, engine, and hydraulic and electrical controls all have to be tuned to one another. You can make a car out of high-quality off-the-shelf parts, but it won’t be a “driving machine.” In a case like this there is a sharp gain to careful coordination of the parts into a whole.
I am describing a strategy as a design rather than as a plan or as a choice because I want to emphasize the issue of mutual adjustment. In design problems, where various elements must be arranged, adjusted, and coordinated, there can be sharply peaked gains to getting combinations right and sharp costs to getting them wrong. A good strategy coordinates policies across activities to focus the competitive punch.
THE ARC OF ENTERPRISE
Companies buy pickup trucks, office equipment, vertical milling machines, and chemical processing equipment, and they hire the services of warehouses, masses of high school and college graduates, lawyers, and accountants. None of these inputs are normally strategic resources. These kinds of assets and services cannot, in general, confer a competitive advantage, because competitors have access to virtually identical assets and services on the same terms. A strategic resource is a kind of property that is fairly long lasting that has been constructed, developed over time, designed, or discovered by a company and that competitors cannot duplicate without suffering a net economic loss.
A high-quality strategic resource yielding a powerful competitive advantage makes for great strategic simplicity.
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. When the profits roll in, leaders will point to their every action with pride. Books will be written recommending that others immediately adopt the successful firm’s dress code, its vacation policy, its suggestion-box policies, and its method of allocating parking spaces. Of course, these connections are specious. Were there such simple, direct connections between current actions and current results, strategy would be a lot easier. It would also be a lot less interesting, for it is the disconnect between current results and current action that makes the analysis of the sources of success so hard and, ultimately, so rewarding.
CHAPTER TEN FOCUS
It is a bright April morning and my upcoming session is for executive MBAs. Some are already there, Web browsing, reading newspapers, or studying. Today’s case is on Crown Cork & Seal, a maker of metal containers.1 It is one of the oldest cases in the strategy collection. Updated many times, the case today takes the company through 1989.
My objectives are not to show my class how to manage a can company, or even how to create a good strategy. Instead, they are (1) to teach them how to identify a company’s strategy, (2) to deepen their skills at analyzing qualitative information, and (3) to explore a particular mixture of policy and positioning called focus.
Using the diagrams for emphasis, I summarize what we have discovered. Crown and the majors are in the same industry but are playing by different rules. By concentrating on a carefully selected part of the market, Crown has not only specialized, it has increased its bargaining power with respect to its buyers. Thus, it captures a larger fraction of the value it creates. The majors, by contrast, have larger volumes of business but capture much lower fractions of the value they create. Thus, Crown crafted a competitive advantage in its target market. It isn’t the biggest can maker, but it makes the most money.
This particular pattern—attacking a segment of the market with a business system supplying more value to that segment than the other players can—is called focus. Here, the word “focus” has two meanings. First, it denotes the coordination of policies that produces extra power through their interacting and overlapping effects. Second, it denotes the application of that power to the right target
“Is it always this way?” a student asks me. “If you do the work, can you find the real strategic logic of every business?”
“No,” I reply, “not of every business. If the business is really successful, then there is usually a good strategic logic behind that success, be it hidden or not. But the truth is that many companies, especially large complex companies, don’t really have strategies. At the core, strategy is about focus, and most complex organizations don’t focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.”
CHAPTER ELEVEN GROWTH
The problem with engineering growth by acquisition is that when you buy a company, especially a public company, you usually pay too much. You pay a premium over its ordinary market value—usually about 25 percent—plus fees. If you have friendly investment bankers and lenders, you can grow as fast as you like by acquisition. 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.
Corporate leaders seek growth for many reasons. They may (erroneously) believe that administrative costs will fall with size. A poor, but common, reason for acquisitions is to move key executives to the periphery rather than let them go. The leaders of larger firms tend to be paid more. And, in a decentralized company, making acquisitions is a lot more fun than reading reports on divisional performance. In addition to all these reasons, key corporate advisers—investment bankers, consultants, mergers and acquisitions law firms, and anyone who can claim a “finder’s fee”—can earn a king’s ransom by being “helpful” in a major deal.
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. It is the reward for successful innovation, cleverness, efficiency, and creativity. This kind of growth is not just an industry phenomenon. It normally shows up as a gain in market share that is simultaneous with a superior rate of profit.
CHAPTER TWELVE USING ADVANTAGE
Two equally skillful chess players sit waiting for the game to begin—which one has the advantage? Two identical armies meet on a featureless plain—which one has the advantage? The answers to these questions is “neither,” because advantage is rooted in differences—in the asymmetries among rivals. In real rivalry, there are an uncountable number of asymmetries. It is the leader’s job to identify which asymmetries are critical—which can be turned into important advantages.
No one has an advantage at everything. Teams, organizations, and even nations have advantages in certain kinds of rivalry under particular conditions. The secret to using advantage is understanding this particularity. You must press where you have advantages and side-step situations in which you do not. You must exploit your rivals’ weaknesses and avoid leading with your own.
COMPETITIVE ADVANTAGE IN BUSINESS
The term “competitive advantage” became a term of art in business strategy with Michael Porter’s 1984 insightful book of that title. Indeed, Warren Buffett has said that he evaluates a company by looking for “sustainable competitive advantage.”
The basic definition of competitive advantage is straightforward. If your business can produce at a lower cost than can competitors, or if it can deliver more perceived value than can competitors, or a mix of the two, then you have a competitive advantage. Subtlety arrives when you realize that costs vary with product and application and that buyers differ in their locations, knowledge, tastes, and other characteristics. Thus, most advantages will extend only so far
VALUE-CREATING CHANGES
Many strategy experts have equated competitive advantage with high profitability. The example of eBay (and of the imaginary silver machine) shows that this is not necessarily so. Despite all the emphasis on “competitive advantage” in the world of business strategy, you cannot expect to make money—to get wealthier—by simply having, owning, buying, or selling a competitive advantage. The truth is that the connection between competitive advantage and wealth is dynamic. That is, wealth increases when competitive advantage increases or when the demand for the resources underlying it increases. In particular, increasing value requires a strategy for progress on at least one of four different fronts:
Deepening Advantage
Start by defining advantage in terms of surplus—the gap between buyer value and cost. Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both.
It would be foolish to attempt to summarize the vast variety of methods and approaches that can be used to make improvements in cost and/or value. It is more useful to highlight the two main reasons this process stalls.
First, management may mistakenly believe that improvement is a “natural” process or that it can be accomplished by pressure or incentives alone
The second reason firms may fail to engage in a process of improvement occurs when isolating mechanisms surrounding important methods are weak. Companies in such situations sensibly hope to catch a free ride on the improvements of others. To benefit from investments in improvement, the improvements must either be protected or embedded in a business that is sufficiently special that its methods are of little use to rivals.
Broadening the Extent of Advantage
Extending an existing competitive advantage brings it into new fields and new competitions. For example, cell phone banking is a growing phenomenon outside of the United States, especially in the less developed countries.
Creating Higher Demand
A competitive advantage becomes more valuable when the number of buyers grows and/or when the quantity demanded by each buyer increases.
Strengthening Isolating Mechanisms
An isolating mechanism inhibits competitors from duplicating your product or the resources underlying your competitive advantage. If you can create new isolating mechanisms, or strengthen existing ones, you can increase the value of the business. This increased value will flow from lessened imitative competition and a consequent slower erosion of your resource values.
The most obvious approach to strengthening isolating mechanisms is working on stronger patents, brand-name protections, and copyrights
CHAPTER THIRTEEN USING DYNAMICS
In classical military strategy the defender prefers the high ground. It is harder to attack and easier to defend. The high ground constitutes a natural asymmetry that can form the basis of an advantage.
Much of academic strategy theory concerns more and more intricate explanations for why certain types of economic high ground are valuable. But such discussions sidestep an even more important question: how do you attain such an advantaged position in the first place? The problem is that, as valuable as such positions are, the costs of capturing them are even higher. And an easy-to-capture position will fall just as easily to the next attacker.
One way to find fresh undefended high ground is by creating it yourself through pure innovation. Dramatic technical inventions, such as Gore-Tex, or business model innovations, such as FedEx’s overnight delivery system, create new high ground that may last for years before competitors appear at the ramparts.
The other way to grab the high ground—the way that is my focus here—is to exploit a wave of change. Such waves of change are largely exogenous—they are mostly beyond the control of any one organization. No one person or organization creates these changes. They are the net result of a myriad of shifts and advances in technology, cost, competition, politics, and buyer perceptions. Important waves of change are like an earthquake, creating new high ground and leveling what had been high ground. Such changes can upset the existing structures of competitive positions, erasing old advantages and enabling new ones. They can unleash forces that may strengthen or radically weaken existing leaders. They can enable wholly new strategies.
An exogenous wave of change is like the wind in a racing boat’s sails. It provides raw, sometimes turbulent, power. A leader’s job is to provide the insight, skill, and inventiveness that can harness that power to a purpose. You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground—become valuable and defensible—as the dynamics play out.
To begin to see a wave of change it helps to have some perspective. Business buzz speak constantly reminds us that the rate of change is increasing and that we live in an age of continual revolution. Stability, one is told, is an outmoded concept, the relic of a bygone era. None of this is true. Most industries, most of the time, are fairly stable. Of course, there is always change, but believing that today’s changes are huge, dwarfing those in the past, reflects an ignorance of history
CHAPTER FOURTEEN INERTIA AND ENTROPY
Even with its engines on hard reverse, a supertanker can take one mile to come to a stop. This property of mass—resistance to a change in motion—is inertia. In business, inertia is an organization’s unwillingness or inability to adapt to changing circumstances. Even with change programs running at full throttle, it can take many years to alter a large company’s basic functioning.
Were organizational inertia the whole story, a well-adapted corporation would remain healthy and efficient as long as the outside world remained unchanged. But, another force, entropy, is also at work. In science, entropy measures a physical system’s degree of disorder, and the second law of thermodynamics states that entropy always increases in an isolated physical system. Similarly, weakly managed organizations tend to become less organized and focused. Entropy makes it necessary for leaders to constantly work on maintaining an organization’s purpose, form, and methods even if there are no changes in strategy or competition.
Inertia and entropy have several important implications for strategy:
INERTIA
Organizational inertia generally falls into one of three categories: the inertia of routine, cultural inertia, and inertia by proxy. Each has different implications for those who wish to reduce inertia or those who seek to gain by attacking a less-responsive rival.
The Inertia of Routine
The heartbeat of any sizable business is the rhythmic pulse of standard procedures for buying, processing, and marketing goods. Its more conscious actions are guided by less rhythmic but still well-marked paths. Even the breathless chase after an important new client, the sizing of a new facility, and the formulation of plans are familiar moves in a game that has been played before. An organization of some size and age rests on layer upon layer of impacted knowledge and experience, encapsulated in routines—the “way things are done.” These routines not only limit action to the familiar, they also filter and shape managers’ perceptions of issues. An organization’s standard routines and methods act to preserve old ways of categorizing and processing information.
Inertia due to obsolete or inappropriate routines can be fixed. The barriers are the perceptions of top management. If senior leaders become convinced that new routines are essential, change can be quick. The standard instruments are hiring managers from firms using better methods, acquiring a firm with superior methods, using consultants, or simply redesigning the firm’s routines. In any of these cases, it will probably be necessary to replace people who have invested many years developing and using the obsolete methods as well as to reorganize business units around new patterns of information flow.
The Inertia of Culture
We use the word “culture” to mark the elements of social behavior and meaning that are stable and strongly resist change.
The first step in breaking organizational culture inertia is simplification. This helps to eliminate the complex routines, processes, and hidden bargains among units that mask waste and inefficiency. Strip out excess layers of administration and halt nonessential operations—sell them off, close them down, spin them off, or outsource the services. Coordinating committees and a myriad of complex initiatives need to be disbanded. The simpler structure will begin to illuminate obsolete units, inefficiency, and simple bad behavior that was hidden from sight by complex overlays of administration and self-interest.
After the first round of simplification, it may be necessary to fragment the operating units. This will be the case when units do not need to work in close coordination—when they are basically separable. Such fragmentation breaks political coalitions, cuts the comfort of cross-subsidies, and exposes a larger number of smaller units to leadership’s scrutiny of their operations and performance. After this round of fragmentation, and more simplification, it is necessary to perform a triage. Some units will be closed, some will be repaired, and some will form the nuclei of a new structure. The triage must be based on both performance and culture—you cannot afford to have a high-performing unit with a terrible culture infect the others. The “repair” third of the triaged units must then be put through individual transformation and renewal maneuvers.
Changing a unit’s culture means changing its members’ work norms and work-related values. These norms are established, held, and enforced daily by small social groups that take their cue from the group’s high-status member—the alpha. In general, to change the group’s norms, the alpha member must be replaced by someone who expresses different norms and values. All this is speeded along if a challenging goal is set. The purpose of the challenge is not performance per se, but building new work habits and routines within the unit.
Once the bulk of operating units are working well, it may then be time to install a new overlay of coordinating mechanisms, reversing some of the fragmentation that was used to break inertia.
Inertia by Proxy
A lack of response is not always an indication of sticky routines or a frozen culture. A business may choose to not respond to change or attack because responding would undermine still-valuable streams of profit. Those streams of profit persist because of their customers’ inertia—a form of inertia by proxy.
Inertia by proxy disappears when the organization decides that adapting to changed circumstances is more important than hanging on to old profit streams.
ENTROPY
It is not hard to see entropy at work. With the passage of time, great works of art blur and crumble, the original intent fading unless skillful restorers do their work. Drive down a suburban street and it is easy to spot the untended home. Weeds grow in the garden, paint peels from a door. Similarly, one can sense a business firm that has not been carefully managed. Its product line grows less focused; prices are set low to please the sales department, and shipping schedules are too long, pleasing only the factory. Profits are taken home as bonuses to executives whose only accomplishment is outdoing the executive next door in internal competition over the bounty of luck and history.
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.
PART III THINKING LIKE A STRATEGIST
In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or to a customer. Advice to do this is both often given and taken. Yet this advice skips over what is possibly the most useful shift in viewpoint: thinking about your own thinking.
Our intentions do not fully control our thoughts. We become acutely aware of this when we are unable to suppress undesired ruminations about risk, disease, and death.* A great deal of human thought is not intentional—it just happens. One consequence is that leaders often generate ideas and strategies without paying attention to their internal process of creation and testing.
This section of the book presents a number of ways of thinking about thinking that can help you create better strategies. Chapter 16, “The Science of Strategy,” explores the analogy between a strategy and a scientific hypothesis. Each is an inductive leap that must be subjected to both logical and empirical tests before its validity can be ascertained. Chapter 17, “Using Your Head,” presents some specific techniques that can be helpful in expanding the scope of your thinking about strategy and in subjecting your ideas to deeper criticism. Chapter 18, “Keeping Your Head,” is designed to sharpen your sensitivity to the need to form an independent judgment about important issues.
CHAPTER SIXTEEN THE SCIENCE OF STRATEGY
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. The most precious functional knowledge is proprietary, available only to your organization.
An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism. Good strategy rests on a hard-won base of such knowledge, and any new strategy presents the opportunity to generate it. A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment. As results appear, good leaders learn more about what does and doesn’t work and adjust their strategies accordingly.
STRATEGY IS A HYPOTHESIS
Connection between business strategy and the process of science:
Where does scientific knowledge come from? You know the process. A good scientist pushes to the edge of knowledge and then reaches beyond, forming a conjecture—a hypothesis—about how things work in that unknown territory. If the scientist avoids the edge, working with what is already well known and established, life will be comfortable, but there will be neither fame nor honor.
In the same way, a good business strategy deals with the edge between the known and the unknown. Again, it is competition with others that pushes us to edges of knowledge. Only there are found the opportunities to keep ahead of rivals. There is no avoiding it. That uneasy sense of ambiguity you feel is real. It is the scent of opportunity.
In science, you first test a new conjecture against known laws and experience. Is the new hypothesis contradicted by basic principles or by the results of past experiments? If the hypothesis survives that test, the scientist has to devise a real-world test—an experiment—to see how well the hypothesis stands up.
Similarly, we test a new strategic insight against well-established principles and against our accumulated knowledge about the business. If it passes those hurdles, we are faced with trying it out and seeing what happens.
Given that we are working on the edge, asking for a strategy that is guaranteed to work is like asking a scientist for a hypothesis that is guaranteed to be true—it is a dumb request. The problem of coming up with a good strategy has the same logical structure as the problem of coming up with a good scientific hypothesis. The key differences are that most scientific knowledge is broadly shared, whereas you are working with accumulated wisdom about your business and your industry that is unlike anyone else’s.
A good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment. And there isn’t anyone more educated about your businesses than the group in this room
ENLIGHTENMENT AND SCIENCE
If new insights or ideas are not needed, deduction is sufficient. There can be times when results are fine, when no new opportunities seem to have developed and no new risks have appeared. Then, the logical answer to the strategy question is simply “Keep it up, do more of the same.” But in a world of change and flux, “more of the same” is rarely the right answer. In a changing world, a good strategy must have an entrepreneurial component. That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities.
The problem with treating strategy as a crank-winding exercise is that systems of deduction and computation do not produce new interesting ideas, no matter how hard one winds the crank. Even in pure mathematics, the ultimate deductive system, stating and proving an interesting new theorem is a profoundly creative act.
Treating strategy like a problem in deduction assumes that anything worth knowing is already known—that only computation is required. Like computation, deduction applies a fixed set of logical rules to a fixed set of known facts
A strategy is, like a scientific hypothesis, an educated prediction of how the world works. The ultimate worth of a strategy is determined by its success, not its acceptability to a council of philosophers or a board of editors. Good strategy work is necessarily empirical and pragmatic. Especially in business, whatever grand notions a person may have about the products or services the world might need, or about human behavior, or about how organizations should be managed, what does not actually “work” cannot long survive.
CHAPTER SEVENTEEN USING YOUR HEAD
SOME TECHNIQUES
To create strategy in any arena requires a great deal of knowledge about the specifics. There is no substitute for on-the-ground experience. This experience accumulates in the form of associations between situations and “what works” or “what can happen” in those situations. Just as doctors prescribed aspirin for headache and fever without knowing how it worked, just as the ancient Romans dealt in life insurance without any theory of probability, so you must normally work with patterns and analogies. Of course, in some cases, our knowledge is even stronger, and we have theories about the causal structure of the situation—about what causes what.
In strategy work, knowledge is necessary but not sufficient. There are many people with deep knowledge or experience who are poor at strategy. To guide your own thinking in strategy work, you must cultivate three essential skills or habits. First, you must have a variety of tools for fighting your own myopia and for guiding your own attention. Second, you must develop the ability to question your own judgment. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition. Third, you must cultivate the habit of making and recording judgments so that you can improve.
What follows are a few techniques that I have found useful in jogging minds loose from their ruts, for helping to check that strategies have some coherence, and for improving your ability to make judgments as well as critique them. There are, of course, other ways to guide your own thinking. As I describe these techniques, you will recognize some that you have used or come across. Rather than let those recognitions glimmer and fade, it might be useful to make a list.
The Kernel
The kernel is a list reminding us that a good strategy has, at a minimum, three essential components: a diagnosis of the situation, the choice of an overall guiding policy, and the design of coherent action. The concept of the kernel defines the logic of a strategy—the bare-bones minimum. For a strategy to have any bite, it must chart a direction based on a diagnosis of the situation. Absent a diagnosis, one cannot judge one’s own choice of an overall guiding policy, much less someone else’s choice. A strategy must also translate the overall directive into coordinated action focused on key points of leverage in the situation. (The concept of the kernel and its elements is explored in greater depth in chapter 5.) When one has an initial insight into what to do about a challenging situation, it never occurs in the form of a full-blown strategy. Rather, the lightning of insight strikes in one of the three elements of the kernel. It may be an insight into action, as in the case of the participant who wanted to put smaller disk drives in TiVo machines. It may be an insight into a general directive, as it was for the participant who wanted to shift focus to the cable TV segment. Or insight may arrive in the form of a diagnosis, as in the case of the participant who saw TiVo as the consumer’s friend but also as a Napster-like thorn in the side of the industry.
There is nothing wrong with a localized insight. We have no real control over the process of insight and should be glad when it works at all. What the kernel does, however, is remind us that a strategy is more than a localized insight. It is an internally consistent argument that leads from facts on the ground to diagnosis, thence to an overall directive, thence to action. The kernel reminds us to expand the scope of our thinking to include all three elements.
There are those who prefer to begin their approach to strategy with action. My own insights, however, normally don’t start with action. I tend to use a problem-first structure. I am better at starting with a frame or diagnosis of the situation and then working through the guiding policy and action elements of the kernel. At the start of most consulting engagements, the client wants an appraisal of a particular course of action or wants advice on what to do. I almost always back up and try to create a better diagnosis of the situation before getting into recommendations.
Problem-Solution
Many attempts at strategy lack a good diagnosis. Hence, it is useful to have mental tools for working backward from a guiding policy to the realm of diagnosis and fact. There is nothing deep about this process other than realizing that it can and should be done.
People normally think of strategy in terms of action—a strategy is what an organization does. But strategy also embodies an approach to overcoming some difficulty. Identifying the difficulties and obstacles will give you a much clearer picture of the pattern of existing and possible strategies. Even more important, you will gain access to how changes in some factors may radically alter the mix of efficacious strategies. To gain this change in perspective, shift your attention from what is being done to why it is being done, from the directions chosen to the problems that these choices address.
Create-Destroy
Overcoming quick closure is simple in principle: you look for additional insights and strategies. But, most of the time, when asked to generate more alternatives, people simply add one or two shallow alternatives to their initial insight. Consciously or unconsciously, they seem to resist developing several robust strategies. Instead, most people take their initial insight and tweak it slightly, adding a straw-man alternative, or including options such as “walk away,” or “more study,” that are generic to any situation rather than being responsive to the special circumstances at hand.
A new alternative should flow from a reconsideration of the facts of the situation, and it should also address the weaknesses of any already developed alternatives. The creation of new higher-quality alternatives requires that one try hard to “destroy” any existing alternatives, exposing their fault lines and internal contradictions. I call this discipline create-destroy.
PRACTICING JUDGMENT
A sailor has to judge the wind and a ski racer must judge the texture of the snow. In business and politics, and in many aspects of military strategy, most of the important judgments are about people, especially anticipating their actions and reactions. Judgment begins with knowing yourself, your abilities and biases. Then it extends to knowing other individuals. Much more complex is judgment about small groups and how they will react in response to information or challenges—the domain of many managers, trial lawyers, and platoon leaders. Finally, there is judgment about large groups of people and markets—the domain of marketing and advertising experts, corporate management, and political leadership.
Good judgment is hard to define and harder still to acquire. Certainly some part of good judgment seems to be innate, connected with having a balanced character and an understanding of other people. Still, I am convinced that judgment can be improved with practice. For that practice to be effective, you should first commit your judgments to writing.
CHAPTER EIGHTEEN KEEPING YOUR HEAD
If you can keep your head when all about you Are losing theirs?—“IF,” RUDYARD KIPLING
Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. Bad strategy follows the crowd, substituting popular slogans for insights.
Being independent without being eccentric and doubting without being a curmudgeon are some of the most difficult things a person can do.
Social herding presses us to think that everything is OK (or not OK) because everyone else is saying so. The inside view presses us to ignore the lessons of other times and other places, believing that our company, our nation, our new venture, or our era is different. It is important to push back against these biases. You can do this by paying attention to real-world data that refutes the echo-chamber chanting of the crowd—and by learning the lessons taught by history and by other people in other places.