Good Strategy Bad Strategy - Summary Notes

Most organisations do not understand what good strategy is or are unwilling to make difficult decisions to implement it. Good strategy is so rare that it’s often not anticipated by the competition. A good strategy can therefore often lead to better than anticipated results.

Good strategy is based on determining what’s truly important, understanding your strengths and weaknesses and those of your competition and then bringing relative strength to bear against relative weakness. Great success often results from a competitor misunderstanding your strategy until it’s either too late or their inertia makes it difficult for them to react.

Strategy is often confused with strategic goals, strategic plans or aspirational blue-sky visions.

The kernel of good strategy consists of a diagnosis of the challenge, policies for dealing with it and cohesive actions.

Strategy does not need to contain all the actions to deal with situations that may unfold but there must be sufficient detail to make concepts clear. Bad strategy is often shrouded in fluff and ambiguity.

Applying leverage, focussed effort, at a point of greatest impact is a source of great strategic power. Remove the keystone from a bridge and it will become structurally unstable. Sometimes you need to apply a minimum amount of energy and focus to make any impact. Unless you surpass the minimum threshold, your effort and investment will be wasted. 

An important attribute of any leader is to absorb a large part of the complexity and ambiguity of a challenge and pass on a simpler proximate objective, one that is solvable and feasible. Another way to think about a proximate objective is, what one thing could you do to make the biggest impact. With a clear proximate objective, it can be used to create lower level unit goals within the organisation. Foundational layers of competence must be in place before taking on increasingly challenging objectives.

A chain-link system is one where the performance is limited by its weakest link. When dealing with a chain-link system, it’s critical to understand what is the limiting factor (weakest link) and how it can be removed. Incremental changes to chain-link systems often to not result in visible progress and therefore require leaders to design proximate goals to measure progress. Excellence in chain-linked systems comes from high-quality integrated activities that only together provide a strong competitive advantage.

Good strategy is design. A master strategist is a designer. 

Good design requires balancing all the design parameters while developing a competitive advantage. The greater the number of constraints and the fewer resources you have, the more tightly integrated your actions need to be. As an organisation amasses resources, the need for good strategy reduces until the organisation becomes complacent and bloated. Well established organisations can often hold onto old strategy long after it’s effective and it's surpassed by new competitors. Good strategy requires focussing on changes in the environment (including competition) that threaten the logic of its design.

You can determine an organisation’s strategy by analysing its policies, looking for their common target and noticing which are different to industry norms. What are those policies focussed towards? Initial insights into strategy may not always be right. Always test them against the evidence.

One of the biggest misconceptions for a commodities company is the need for relentless and strong growth. Profits are ploughed into the business to continue to fuel growth. If demand for the commodity wanes or disappears then so do profits and competitive advantage. An alternative approach is have a strategy that serves a niche segment of the commodities market that allows the organisation to retain more value. Growth may slow overtime, but the return on capital can remain high. 

Competitive advantage is rooted in differences, but these differences only lead to value if they can be deepened, extended, used to engineer higher demand or used to strengthen isolating mechanisms that block replication. A leader’s role is to identify these differences and leverage strengths while avoiding pressing in areas of weakness. Even if the underlying resource is a commodity, by providing more value, you can avoid a product or service becoming a commodity.

Strategy should exploit shifts in technology, costs, politics, competition and perceptions. You don’t need to create these major shifts, but predict what the second and third order effects will be better than the competition. Guideposts for peering into the fog of uncertainty include rising technology shifts requiring increased R&D and a subsequent consolidation of players, deregulation resulting in some incumbents remaining inefficient due to a lack of visibility into pricing and predictable growth trajectories that flatten and follow a growth and replacement model after saturation.

Changes to organisational process and procedure is often impaired by inertia. Organisations frequently hold on to ways of doing things that are no longer best practice or aligned with strategy. Customer inertia can often be exploited for a period of time, but once change does happen, it can often happen quickly and strategies that depend on their inertia can be dramatically impacted. If strategy is design, then entropy is a lack of governance in the implementation and maintenance of strategy. Effective strategy requires focus, operational excellence and management discipline to implement it.

A good strategy is a hypothesis, an educated guess about what will work and its implementation is an experiment.

Success comes from learning based on experimental data and adjusting the strategy and repeating the process until the strategy allows you to meet the challenge.

Effective strategy comes from understanding how you think about thinking and avoiding the temptation of going purely on your first insight without purposely evaluating it against alternatives. We spend too much time justifying our first insight than assessing and validating it. Using a real or imaginary panel to assess your judgement forces you to hear or take on different perspectives or views. You must develop a habit of questioning judgements and take the opportunity to make better judgement by writing them down in advance, then learning through reflection.

Effective strategy requires you to look into the details and make informed decisions. Do not follow a herd mentality. Pay attention to real-world data, question assumptions and go back in history and look for past examples.