Good Strategy/Bad Strategy

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718

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Full Title

Good Strategy/Bad Strategy

Author

Rumelt, Richard

Samenvatting

Het boek "Good Strategy/Bad Strategy" van Richard Rumelt legt uit dat een goede strategie zich richt op het identificeren van belangrijke uitdagingen en het coördineren van acties om deze aan te pakken. Slechte strategieën negeren details en focussen op vage doelen zonder echte richting te bieden. Effectieve strategieën vereisen heldere diagnosen, richtlijnen en coherente acties om succes te behalen.

Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain. (Location 267)

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. (Location 271)

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. (Location 317)

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. (Location 322)

bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. (Location 324)

A word that can mean anything has lost its bite. (Location 342)

the term “strategy” should mean a cohesive response to an important challenge. (Location 347)

Executives who complain about “execution” problems have usually confused strategy with goal setting. (Location 357)

Strategy is about how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests. (Location 359)

Bad strategy may actively avoid analyzing obstacles because a leader believes that negative thoughts get in the way. (Location 379)

The only remedy is for us to demand more from those who lead. More than charisma and vision, we must demand good strategy. (Location 385)

A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end. (Location 414)

The power of Jobs’s strategy came from directly tackling the fundamental problem with a focused and coordinated set of actions. (Location 447)

frenzy—he redesigned the whole business logic around a simplified product line (Location 449)

too complicated (Location 453)

bleeding cash. (Location 453)

They had each told me the formula for success in the 1990s electronics industry—take a good position quickly when a new window of opportunity opens—but none said that was their focus or even mentioned it as part of their strategy. (Location 469)

“I am going to wait for the next big thing.” (Location 479)

massive secret “left hook.” (Location 525)

their floating presence being a diversion. (Location 531)

Few had anticipated this envelopment maneuver. But why hadn’t they? (Location 546)

Envelopment avoids the enemy’s front, where its forces are most protected and his fires most easily concentrated. (Location 551)

The press unwittingly helped in this misdirection by reporting on the photogenic amphibious training, the build-up of troops just south of Kuwait, and then by anguishing over the prospect of World War I trench warfare. (Location 561)

the real surprise was that such a pure and focused strategy was actually implemented. (Location 569)

Most complex organizations spread rather than concentrate resources, acting to placate and pay off internal and external interests. (Location 570)

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had to be forced against strenuous protest to divert their resources to fully support the land offensive. (Location 577)

Having conflicting goals, dedicating resources to unconnected targets, and accommodating (Location 583)

incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy. (Location 584)

Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. (Location 586)

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. (Location 591)

It is said that strategy brings relative strength to bear against relative weakness. (Location 601)

weakness—Goliath’s armor didn’t cover this vital area. (Location 608)

David’s weapon delivered force with precision over a distance, neutering Goliath’s supposed advantages of size and strength. The story teaches us that our preconceived ideas of strength and weakness may be unsound. (Location 608)

the listener experiences the actual discovery of power in a situation—the creation or revelation of a decisive asymmetry. (Location 612)

Not every good strategy draws on this kind of insight, but those that do generate the extra kick that separates “ordinary excellence” from the extraordinary. (Location 615)

helping them uncover the hidden power in situations. (Location 618)

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. (Location 652)

Whenever an organization succeeds greatly, there is also, at the same time, either blocked or failed competition. (Location 655)

This whole design—structure, policies, and actions—is coherent. (Location 672)

The Wal-Mart store needs to be part of the network.” (Location 692)

the oft-forgotten cost of decentralization is lost coordination across units. (Location 709)

They grew out of a subtle shift in how to think about discount retailing. (Location 718)

how the process of planning shapes strategic outcomes. (Location 726)

“Our defense planning,” he said, “had become driven by the annual budgeting process.” (Location 728)

a response to the threat that amounted to a shopping list. (Location 730)

a way as to develop competitive advantage—both (Location 744)

having a true competitive strategy meant engaging in actions that imposed exorbitant costs on the other side. (Location 746)

it was clear that the Soviet Union was faltering because it was overextended. (Location 758)

use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you. (Location 765)

As in any complex event, there were many causes. (Location 775)

identify your strengths and weaknesses, assess the opportunities and risks (your opponent’s strengths and weaknesses), and build on your strengths. (Location 776)

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. (Location 777)

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compete—the discovery of hidden power in the situation. (Location 783)

Fluff. (Location 789)

Failure to face the challenge. (Location 792)

Bad strategy fails to recognize or define the challenge. (Location 793)

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Mistaking goals for strategy. (Location 795)

Many bad strategies are just statements of desire (Location 796)

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Bad strategic objectives. (Location 797)

Strategic objectives are “bad” when they fail to address critical issues or when they are impracticable. (Location 798)

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describing a destination is no substitute for developing a comprehensive roadmap for how the country will achieve its stated goals.”2 (Location 819)

“All too much of what is put forward as strategy is not. (Location 824)

The basic problem is confusion between strategy and strategic goals.” (Location 824)

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all you find are lists of goals and sub-goals, not strategies.” (Location 825)

how to actually deal with (Location 828)

there were no indications that this doctrine had been turned into a coherent strategy. (Location 831)

the conditions of its actual use to dissuade, deter, and intervene were not explored. (Location 831)

the problems created by this policy, and the competitive reactions to it, were not thought through. (Location 832)

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Preparing the capability for such a major evidence-producing prestrike operation would have to be a critical objective, (Location 836)

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Finally, a policy of preemption encourages adversaries to use extreme secrecy, cover parties, and cutouts, and to use, rather than hold, weapons. Policies that anticipated these predictable patterns in others’ behavior were lacking. (Location 839)

“work with others to defuse regional conflicts.” This is an amazingly superficial political slogan. (Location 842)

a general willingness to work with interested others can hardly be elevated to the status of a “strategy.” (Location 849)

A strategy would have to explain why regional conflicts, which have been a constant in human activity for millennia, are suddenly a major security problem. (Location 850)

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A logical reaction to these documents’ weaknesses might be that they were public—that the real strategies were concealed. (Location 867)

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I had to reject this explanation. (Location 868)

My role at the seminar was to provide a business and corporate strategy perspective on these issues. (Location 872)

Bad strategy, I explained, is not the same thing as no strategy or strategy that (Location 877)

fails rather than succeeds. (Location 878)

Rather, it is an identifiable way of thinking and writing about strategy that has, unfortunately, been gaining ground. (Location 878)

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Fluff is superficial restatement of the obvious combined with a generous sprinkling of buzzwords. (Location 885)

Pull off the fluffy covering and you have the superficial statement “Our bank’s fundamental strategy is being a bank.” (Location 891)

Rather than address the real challenges of establishing a market for bandwidth, this diagram and the accompanying verbal presentation were pure fluff. (Location 926)

If you accept that the phrase “information provider” describes a business strategy, then you are a prime customer for this sort of fluff. (Location 939)

No one wants to write a futures contract with a firm that may fail—which ensures that the firm will fail. (Location 943)

(The accountant’s consulting arm, Andersen Consulting, was renamed Accenture.) (Location 944)

A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity—a flurry of fluff masking an absence of substance. (Location 946)

A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. (Location 949)

Markeren(geel) - Chapter 3 Bad Strategy > Locatie 950 (Location 949)

If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. (Location 950)

And if you cannot assess a strategy’s quality, you cannot reject a bad strategy or improve a good one. (Location 951)

The overall “strategy” was to increase the company’s market share in each market, cut costs in each business, and thereby ramp up revenue and profit. (Location 961)

The problem with all this was that it ignored the elephant in the elevator. You can’t discern the elephant by studying the plan because the plan doesn’t mention it. (Location 970)

If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen. (Location 977)

Today, Harvester’s 1979-style strategic planning is out of fashion. Instead of long tables of numbers and bubble charts, we have a different type of ritualized formalism for producing “strategic plans.” 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.” (Location 985)

Despite the fact that they are adorned with modern phrases and slogans, most of these strategic plans are as bad as International Harvester’s. Like Harvester’s, they do not identify and come to grips with the fundamental obstacles and problems that stand in the organization’s way. (Location 991)

Looking at most of this product, or listening to the managers who have produced it, you will find an almost total lack of strategic thinking. Instead, you will find high-sounding sentiments together with plans to spend more and somehow “get better.” (Location 993)

DARPA’s strategy is more than a general direction. It includes specific policies that guide its everyday actions. (Location 1008)

DARPA has a very limited investment in overhead and physical facilities in order to prevent entrenched interests from thwarting progress in new directions. (Location 1011)

DARPA’s surprising strategy has a shape and structure common to all good strategy. It follows from a careful definition of the challenge. (Location 1014)

It anticipates the real-world difficulties to be overcome. (Location 1015)

“This 20/20 plan is a very aggressive financial goal,” I said. “What has to happen for it to be realized?” (Location 1051)

When I asked Logan “What has to happen?” I was looking for some point of leverage, some reason to believe this fairly quiet company could explode with growth and profit. (Location 1057)

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. (Location 1059)

Can you clarify what the point of leverage might be here, in your company?” (Location 1062)

Strategic objectives should address a specific process or accomplishment, (Location 1068)

A client has to first agree to engage in a dialogue before a tough back-and-forth can be productive. (Location 1070)

In truth, I didn’t really need to study the numbers. What I needed was some time to think about my own approach to helping Logan. Although he was well-intentioned, his plan, to me, was all results and no action. (Location 1072)

In Europe, motivational speakers are not the staple on the management lecture circuit that they are in the United States, where the doctrine of leadership as motivation is alive and well. (Location 1093)

Hearing this, many Americans nod in agreement. Many Europeans, by contrast, hear the echo of the “one last push” at Passchendaele. (Location 1097)

There, the slaughtered troops did not suffer from a lack of motivation. (Location 1098)

The job of the leader is also to create the conditions that will make that push effective, to have a strategy worthy of the effort called upon. (Location 1100)

I told him that I would explain my point of view and then let him decide whether he wanted to work with me on strategy. (Location 1103)

I think you have a lot of ambition, but you don’t have a strategy. (Location 1104)

What I would advise is that you first work to discover the very most promising opportunities for the business. (Location 1106)

It’s normally a good idea to look very closely at what is changing in your business, where you might get a jump on the competition. (Location 1109)

The end result will be a strategy that is aimed at channeling energy into what seem to be one or two of the most attractive opportunities, where it looks like you can make major inroads or breakthroughs. (Location 1112)

I can’t tell you in advance how large such opportunities are, or where they may be. I can’t tell you in advance how fast revenues will grow. (Location 1114)

in the end, you should have a very short list of the most important things for the company to do. (Location 1117)

If you continue down the road you are on you will be counting on motivation to move the company forward. I cannot honestly recommend that as a way forward because business competition is not just a battle of strength and wills; it is also a competition over insights and competencies. (Location 1119)

I was pleased to be elsewhere engaged. (Location 1126)

Chad Logan’s “key strategies” had little to do with strategy. They were simply performance goals. This same problem affects many corporate “strategy plans.” (Location 1127)

Business leaders know their organizations should have a strategy. Yet many express frustration with the whole process of strategic planning. (Location 1129)

most corporate strategic plans are simply three-year or five-year rolling budgets combined with market share projections. (Location 1131)

You can call these annual exercises “strategic planning” if you like, but they are not strategy. They cannot deliver what senior managers want: a pathway to substantially higher performance. (Location 1138)

To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them. (Location 1139)

The need for true strategy work is episodic, not necessarily annual. (Location 1144)

Effective senior leaders don’t chase arbitrary goals. Rather, they decide which general goals should be pursued. (Location 1150)

To help clarify this distinction it is helpful to use the word “goal” to express overall values and desires and to use the word “objective” to denote specific operational targets. (Location 1155)

A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives. (Location 1159)

Chen Brothers did not fall into the trap of believing that strategy is a grand vision or a set of financial goals. (Location 1175)

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. (Location 1180)

A long list of “things to do,” often mislabeled as “strategies” or “objectives,” is not a strategy. It is just a list of things to do. (Location 1183)

Such lists usually grow out of planning meetings in which a wide variety of stakeholders make suggestions as to things they would like to see done. (Location 1184)

a blue-sky objective is usually a simple restatement of the desired state of affairs or of the challenge. It skips over the annoying fact that no one has a clue as to how to get there. (Location 1198)

The purpose of good strategy is to offer a potentially achievable way of surmounting a key challenge. (Location 1201)

Markeren(geel) - Chapter 3 Bad Strategy > Locatie 1221 (Location 1220)

When a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance. (Location 1221)

Unless leadership offers a theory of why things haven’t worked in the past, or why the challenge is difficult, it is hard to generate good strategy. (Location 1223)

Bad strategy generates a feeling of dull annoyance when you have to listen to it or read it. (Location 1257)

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. (Location 1266)

Markeren(geel) - Chapter 4 Why so much Bad Strategy? > Locatie 1268 (Location 1267)

bad strategy is the active avoidance of the hard work of crafting a good strategy. (Location 1268)

One common reason for choosing avoidance is the pain or difficulty of choice. (Location 1269)

A second pathway to bad strategy is the siren song of template-style strategy—filling in the blanks with vision, mission, values, and strategies. (Location 1270)

A third pathway to bad strategy is New Thought—the belief that all you need to succeed is a positive mental attitude. (Location 1272)

Strategy involves focus and, therefore, choice. (Location 1276)

choice means setting aside some goals in favor of others. (Location 1276)

if one has a policy of resolving conflict by adopting all the options on the table, there will be no incentive for anyone to develop and sharpen their arguments in the first place. (Location 1294)

disciplined conflict calls forth stronger evidence and reasoning. (Location 1296)

This cycling of results, with no ending point, is Condorcet’s paradox. (Location 1308)

group irrationality is a central property of democratic voting, a fact not covered in high school civics. (Location 1311)

This fluffy, amorphous statement was, of course, not a strategy. It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to forgo. (Location 1325)

the essential difficulty in creating strategy is not logical; it is choice itself. (Location 1338)

Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others. (Location 1339)

There is difficult psychological, political, and organizational work in saying “no” to whole worlds of hopes, dreams, and aspirations. (Location 1340)

When a strategy works, we tend to remember what was accomplished, not the possibilities that were painfully set aside. (Location 1341)

Any coherent strategy pushes resources toward some ends and away from others. (Location 1349)

Markeren(geel) - Chapter 4 Why so much Bad Strategy? > Locatie 1364 (Location 1363)

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. (Location 1364)

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. (Location 1366)

universal buy-in usually signals the absence of choice. (Location 1369)

the study of charisma has led to a common type of bad strategy. (Location 1380)

Charisma does not by itself guarantee effectiveness as a leader.” (Location 1402)

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. (Location 1403)

This conceptual scheme has been hugely popular with college-educated people who have to manage other college-educated people. (Location 1407)

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. (Location 1410)

Strategy is the craft of figuring out which purposes are both worth pursuing and capable of being accomplished. (Location 1413)

There is no denying the power of charismatic vision to move people. It is a potent way to overcome inertia and motivate both action and self-sacrifice. But in 1212, as in many other times, thousands sacrificed to no end. (Location 1425)

There is a large industry of consultants and book writers who are willing to provide instruction on the delicate differences between missions, visions, strategies, initiatives, and priorities. (Location 1454)

by couching strategy in terms of positives—vision, mission, and values—no feelings are hurt. (Location 1458)

It needs a strategy, not a set of slogans. (Location 1494)

The enormous problem all this creates is that someone who actually wishes to conceive and implement an effective strategy is surrounded by empty rhetoric and bad examples. And the general public is either led astray or puts all such pronouncements into the same mental bin as late-night TV advertising. (Location 1498)

like dipping into the Bible, you could find whatever you wanted in his body of work. (Location 1505)

“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.” (Location 1506)

“If you don’t have a competitive advantage, don’t compete.” (Location 1508)

He didn’t ask those divisions to buy in to the vision of their being dropped. (Location 1510)

If you want to manage like Jack Welch, pay attention to what he did, not to what he, or his ghost writers, say he did. (Location 1511)

This fascination with positive thinking, and its deep connections to inspirational and spiritual thought, was invented about 150 years ago in New England as a mutation of Protestant Christian individualism. (Location 1514)

Elements of New Thought have recently seeped into strategic thinking through literature on leadership and vision. (Location 1566)

This statement is very appealing to many people and, at the same time, is quite obviously untrue. (Location 1579)

Ascribing the success of Ford and Apple to a vision, shared at all levels, rather than pockets of outstanding competence mixed with luck, is a radical distortion of history. (Location 1580)

anti-Jewish ranting.14 Just as New Thought writers advised people to never let negative thoughts enter their heads, the shared-vision school places a premium on commitment—the unwavering belief that the vision is right. (Location 1596)

These ritual recitations obviously tap into a deep human capacity to believe that intensely focused desire is magically rewarded. (Location 1616)

All analysis starts with the consideration of what may happen, including unwelcome events. (Location 1620)

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. (Location 1621)

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. (Location 1625)

if the kernel is absent or misshapen, then there is a serious problem. (Location 1628)

A diagnosis that defines or explains the nature of the challenge. (Location 1633)

identifying certain aspects of the situation as critical. (Location 1635)

A guiding policy for dealing with the challenge. This is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis. (Location 1636)

A set of coherent actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy. (Location 1639)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1651 (Location 1650)

The first step toward effective strategy is diagnosing the specific structure of the challenge rather than simply naming performance goals. (Location 1651)

second step is choosing an overall guiding policy for dealing with the situation that builds on or creates some type of leverage or advantage. (Location 1652)

In many large organizations, the challenge is often diagnosed as internal. (Location 1655)

It leaves out visions, hierarchies of goals and objectives, references to time span or scope, and ideas about adaptation and change. (Location 1662)

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. (Location 1672)

really only one question you are asking in each case. That question is ‘What’s going on here?’” (Location 1675)

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. (Location 1677)

An especially insightful diagnosis can transform one’s view of the situation, bringing a radically different perspective to bear. (Location 1680)

An explicit diagnosis permits one to evaluate the rest of the strategy. (Location 1682)

making the diagnosis an explicit element of the strategy allows the rest of the strategy to be revisited and changed as circumstances change. (Location 1682)

Slowing growth is a problem for Wall Street but is a natural stage in the development of any noncancerous entity. (Location 1687)

diagnosis is a judgment about the meanings of facts. (Location 1702)

Because the challenge was ill-structured, a real-world strategy could not be logically deduced from the observed facts. (Location 1705)

The diagnosis for the situation should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects. (Location 1707)

a good strategic diagnosis does more than explain a situation—it also defines a domain of action. (Location 1710)

good strategy tends to be based on the diagnosis promising leverage over outcomes. (Location 1711)

A diagnosis is generally denoted by metaphor, analogy, or reference to a diagnosis or framework that has already gained acceptance. (Location 1721)

antagonism between communism and capitalist societies was a central foundation of Stalin’s political regime, preventing any sincere accommodation or honest international agreements. (Location 1727)

In business, most deep strategic changes are brought about by a change in diagnosis—a change in the definition of the company’s situation. (Location 1745)

The primary obstacle was the lack of internal coordination and agility. (Location 1757)

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. (Location 1764)

the guiding policy directs and constrains action without fully defining its content. (Location 1767)

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. (Location 1768)

many other people use the term “strategy” for what I am calling the “guiding policy.” (Location 1781)

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. (Location 1782)

Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. (Location 1784)

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. (Location 1785)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1790 (Location 1788)

In most modern treatments of competitive strategy, it is now common to launch immediately into detailed descriptions of specific sources of competitive advantage. Having lower costs, a better brand, a faster product-development cycle, more experience, more information about customers, and so on, can all be sources of advantage. This is all true, but it is important to take a broader perspective. A good guiding policy itself can be a source of advantage. (Location 1790)

A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than canceling one another out. (Location 1793)

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. (Location 1814)

Transcending thousands of individual choices and instead framing the problem in terms of choosing among a few customer groups provided a dramatic reduction in complexity. (Location 1821)

absent a good guiding policy, there is no principle of action to follow. (Location 1828)

Without a guiding policy, Stephanie’s actions and resource allocations would probably be inconsistent and incoherent, fighting with one another and canceling one another out. Importantly, adopting this guiding policy helped reveal and organize the interactions among the many possible actions. (Location 1829)

Having a guiding policy helped create actions that were coordinated and concentrated, focusing her efforts. (Location 1835)

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. (Location 1845)

It is the hard craft of strategy to decide which priority shall take precedence. Only then can action be taken. (Location 1847)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1848 (Location 1847)

there is no greater tool for sharpening strategic ideas than the necessity to act. (Location 1848)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1864 (Location 1863)

As we discussed the situation, my client’s frustration was evident. I stopped taking notes, and we both got up and walked over to the window, looking down on the mews houses below. “Suppose,” I said, “that this was really important, really top-priority critical. Suppose you absolutely had to get some Pan-European products developed and marketed in the next eighteen months or everything would collapse. What would you do then?” (Location 1864)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1893 (Location 1892)

As long as strategy remained at the level of intent and concept, the conflicts among various values and between the organization and the initiative remained tolerable. It was the imperative of action that forced a decision about which issue was actually the most important. (Location 1893)

the kernel of strategy—a diagnosis, a guiding policy, and coherent action—applies to any complex setting. (Location 1897)

The impediment was the hope that the pain of those actions could, somehow, be avoided. (Location 1898)

we always hope that a brilliant insight or very clever design will allow us to accomplish several apparently conflicting objectives with a single stroke, (Location 1898)

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. (Location 1900)

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. (Location 1903)

The coordination of action provides the most basic source of leverage or advantage available in strategy. (Location 1904)

Strategic actions that are not coherent are either in conflict with one another or taken in pursuit of unrelated challenges. (Location 1912)

Now these actions may all have been good ideas, but they did not complement one another. (Location 1924)

They are “strategic” only in the sense that each probably requires the approval of top management. (Location 1925)

A strategy coordinates action to address a specific challenge. (Location 1926)

people tend to think of coordination in terms of continuing mutual adjustments among agents. (Location 1929)

Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design. (Location 1929)

design is the engineering of fit among parts, specifying how actions and resources will be combined. (Location 1930)

Another powerful way to coordinate actions is by the specification of a proximate objective. By “proximate,” I mean a state of affairs close enough at hand to be feasible. If an objective is clear and feasible, it can help coordinate both problem solving and direct action. (Location 1932)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1936 (Location 1934)

Strategy is visible as coordinated action imposed on a system. When I say strategy is “imposed,” I mean just that. It is an exercise in centralized power, used to overcome the natural workings of a system. This coordination is unnatural in the sense that it would not occur without the hand of strategy. (Location 1936)

As a simple example, 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. (Location 1951)

On the other hand, the potential gains to coordination do not mean that more centrally directed coordination is always a good thing. (Location 1959)

Coordination is costly, because it fights against the gains to specialization, the most basic economies in organized activity. To specialize in something is, roughly speaking, to be left alone to do just that thing and not be bothered with other tasks, interruptions, and other agents’ agendas. As is clear to anyone who has belonged to a coordinating committee, coordination interrupts and de-specializes people. Thus, we should seek coordinated policies only when the gains are very large. (Location 1961)

Markeren(geel) - Chapter 5 The Kernel of Good Strategy > Locatie 1967 (Location 1964)

Good strategy and good organization lie in specializing on the right activities and imposing only the essential amount of coordination. (Location 1967)

a good strategy works by harnessing power and applying it where it will have the greatest effect. (Location 1971)

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. (Location 1971)

sources of power used in good strategies: leverage, proximate objectives, chain-link systems, design, focus, growth, advantage, dynamics, inertia, and entropy. (Location 1975)

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.* (Location 1986)

Finding such crucial pivot points and concentrating force on them is the secret of strategic leverage. (Location 1993)

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. (Location 2000)

Most strategic anticipation draws on the predictable “downstream” results of events that have already happened, from trends already at work, from predictable economic or social dynamics, or from the routines other agents follow that make aspects of their behavior predictable. (Location 2024)

Anticipation does not require psychic powers. In many circumstances, anticipation simply means considering the habits, preferences, and policies of others, as well as various inertias and constraints on change. (Location 2046)

To achieve leverage, the strategist must have insight into a pivot point that will magnify the effects of focused energy and resources. (Location 2055)

Murata’s strategy focused organizational energy on decisive aspects of the situation. It was not a profit plan or a set of financial goals. It was an entrepreneurial insight into the situation that had the potential to actually create and extend advantage. (Location 2070)

A pivot point magnifies the effect of effort. It is a natural or created imbalance in a situation, a place where a relatively small adjustment can unleash much larger pent-up forces. (Location 2074)

The business strategist senses such imbalances in pent-up demand that has yet to be fulfilled or in a robust competence developed in one context that can be applied to good effect in another. (Location 2075)

Returns to concentration arise when focusing efforts on fewer, or more limited, objectives generates larger payoffs. (Location 2087)

combinations of constraints and threshold effects. (Location 2088)

A “threshold effect” exists when there is a critical level of effort necessary to affect the system. (Location 2091)

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. (Location 2093)

business strategists will often prefer to dominate a small market segment over having an equal number of customers who represent only a sliver of a larger market. (Location 2099)

Within organizations, some of the factors giving rise to concentration are the substantial threshold effects in effecting change and the cognitive and attention limits of the senior management group. Just as an individual cannot solve five problems at once, most organizations concentrate on a few critical issues at any one time. (Location 2102)

Markeren(geel) - Chapter 6 Using Leverage > Locatie 2109 (Location 2107)

peoples’ perceptions of efficacy affect their willingness to support and take part in further actions. (Location 2109)

We could have simply built a great collection—that would have been the obvious thing to do. Buy art. But I wasn’t comfortable with that as a direction. All we would really accomplish would be to drive up the price of art and move some of it from New York and Paris to Los Angeles. (Location 2119)

Instead of spending our income on buying art, we could transform the subject. (Location 2125)

by aiming to transform the study of art, Williams designed an objective that was novel and nicely scaled to the resources at his disposal. (Location 2130)

he invested where his resources would make a large and more visible difference. (Location 2131)

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. (Location 2140)

The objective Kennedy set, seemingly audacious to the layman, was quite proximate. (Location 2173)

example is the continuing call for energy independence, an objective that remains infeasible absent the political courage to raise gasoline prices and commit to the development of nuclear power. (Location 2179)

a good proximate objective’s feasibility does wonders for organizational energy and focus. (Location 2184)

Homeschooled on a ranch in Colorado, Phyllis had a tough, practical intellect that could see to the root of a problem. (Location 2193)

It was a strategically chosen proximate objective—one the engineers knew how to tackle, so it helped speed the project along. (Location 2210)

accurate.”4 This lunar surface specification absorbed much of the ambiguity in the situation, passing on to the designers a simpler problem. (Location 2215)

Markeren(geel) - Chapter 7 Proximate OBJECTIVES > Locatie 2226 (Location 2224)

every organization faces a situation where the full complexity and ambiguity of the situation is daunting. (Location 2226)

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. (Location 2226)

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. (Location 2228)

The more dynamic the situation, the poorer your foresight will be. (Location 2233)

the more uncertain and dynamic the situation, the more proximate a strategic objective must be. (Location 2233)

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. (Location 2235)

Business schools teach strategy but rarely apply the concept to themselves. (Location 2247)

Markeren(geel) - Chapter 7 Proximate OBJECTIVES > Locatie 2254 (Location 2253)

imagine that they were allowed to have only one objective. And the objective had to be feasible. (Location 2254)

What one single feasible objective, when accomplished, would make the biggest difference? (Location 2255)

more proximate—more like tasks and less like goals. (Location 2265)

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.6 (Location 2273)

You can’t concentrate on the crisis if flying isn’t automatic.” (Location 2294)

To concentrate on an objective—to make it a priority—necessarily assumes that many other important things will be taken care of. (Location 2307)

when I work with a small start-up company, their problems often revolve around coordinating engineering, marketing, and distribution. (Location 2314)

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. (Location 2321)

The logic of the chain is at work in situations ranging from mountain climbing to the space shuttle to aesthetic judgment—situations in which the quality of components or subparts matters. (Location 2333)

Quality matters when quantity is an inadequate substitute. (Location 2335)

Markeren(geel) - Chapter 8 Chain-Link Systems > Locatie 2344 (Location 2335)

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. (Location 2344)

If you have a special skill or insight at removing limiting factors, then you can be very successful. (Location 2345)

Markeren(geel) - Chapter 8 Chain-Link Systems > Locatie 2348 (Location 2348)

When each link is managed somewhat separately, the system can get stuck in a low-effectiveness state. (Location 2348)

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. (Location 2350)

To make matters even more difficult, striving for higher quality in just one of the linked units may make matters worse! (Location 2351)

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. (Location 2352)

It is of little use to supply advanced machinery to unskilled workers, but it is also useless to educate people for jobs that do not exist. (Location 2361)

Government bureaucracy can be a terrible burden, but improvement in its effectiveness can be won only if there is an efficient private sector. (Location 2363)

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. (Location 2365)

The first logical problem in chain-link situations is to identify the bottlenecks, (Location 2401)

There are little or no payoffs to incremental improvements in chain-link systems, (Location 2406)

One of the tasks of the interviewer is to listen for what is not said. (Location 2409)

In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination. To produce a turnaround of a chain-link system, Marco Tinelli tipped the balance, at least for a while, strongly toward central direction and coordination. (Location 2413)

was no other goal during this third campaign. I left cost cutting to the last because I wanted the cost-reduction campaign to work with, but not define, the type of machines we build. (Location 2419)

The price of the machine did not fall, but the cost to the user did. It took a sophisticated sales-engineering team to get this point across to our customers, which was another reason for making this type of cost reduction the last step. (Location 2422)

Chain-link systems can be changed and made excellent. It takes insight into the key bottlenecks. Plus, it takes leadership and the willingness to absorb short-term losses in the quest for future gains. (Location 2425)

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. (Location 2443)

That means that adopting only one of these policies does no good—it adds expense to the competitor’s business without providing any real competition to IKEA. (Location 2444)

in building sustained strategic advantage, talented leaders seek to create constellations of activities that are chain-linked. This adds extra effectiveness to the strategy and makes competitive imitation difficult. (Location 2459)

both excellence and being stuck are reflections of chain-link logic. (Location 2460)

to unstick a stuck chain-linked system, a strong leader must possess the insight and fortitude to make the necessary investments in each link of the chain. (Location 2465)

organizing and coordinating the actions of fighters greatly magnified their effect. (Location 2480)

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. (Location 2531)

By definition, winging it is not a strategy. (Location 2537)

A fundamental ingredient in a strategy is a judgment or anticipation concerning the thoughts and/or behavior of others. (Location 2539)

In game theory one presumes that the opponent is as rational as oneself. It is clear that Hannibal did not make that presumption. (Location 2544)

The idea that a commander could convince warlike Gauls and Spaniards into a mock retreat was almost unthinkable. (Location 2557)

Markeren(geel) - Chapter 9 Using Design > Locatie 2567 (Location 2566)

Hannibal was certainly not briefed by a staff presenting four options arranged on a PowerPoint slide. Rather, he faced a challenge and he designed a novel response. (Location 2567)

many effective strategies are more designs than decisions—are more constructed than chosen. (Location 2569)

doing strategy is more like designing a high-performance aircraft than deciding which forklift truck to buy or how large to build a new factory. (Location 2569)

When someone says “Managers are decision makers,” they are not talking about master strategists, for a master strategist is a designer. (Location 2570)

Business and corporate strategy deal with large-scale design-type problems. (Location 2573)

The greater the challenge, or the higher the performance sought, the more interactions have to be considered. (Location 2574)

there is a sharp gain to careful coordination of the parts into a whole.5 (Location 2577)

Varying forty or fifty parameters, you will eventually find a sweet spot, where everything works together. (Location 2583)

a critical issue becomes the identification of the particular set of buyers—our target market—where we have a differential advantage. Competitive strategy is still design, but there are now more parameters—more interactions—to worry about. (Location 2596)

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. (Location 2601)

A good strategy coordinates policies across activities to focus the competitive punch. (Location 2603)

Most of the work in systems design is figuring out the interactions, or trade-offs, as they were called. (Location 2617)

The moment you tried to optimize any one part, that choice immediately posed problems for other parts. (Location 2618)

Each part of the system had to be reconsidered and shaped to the needs of the rest of the system. (Location 2623)

Markeren(geel) - Chapter 9 Using Design > Locatie 2630 (Location 2626)

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. (Location 2630)

performance is the joint outcome of capability and clever design. (Location 2640)

to get more performance out of a system you have integrate its components and subsystems more cleverly and more tightly. (Location 2641)

A design-type strategy is an adroit configuration of resources and actions that yields an advantage in a challenging situation. (Location 2645)

Markeren(geel) - Chapter 9 Using Design > Locatie 2646 (Location 2645)

Given a set bundle of resources, the greater the competitive challenge, the greater the need for the clever, tight integration of resources and actions. Given a set level of challenge, higher-quality resources lessen the need for the tight integration of resources and actions. (Location 2646)

resources and tight coordination are partial substitutes for each other. If the organization has few resources, the challenge can be met only by clever, tight integration. (Location 2649)

Implicit in these principles is the notion that tight integration comes at some cost. That is, one does not always seek the very highest level of integration in a design for a machine or a business. (Location 2652)

A Formula 1 racing car, for example, is a tightly integrated design and is faster around the track than a Subaru Forester, but the less tightly integrated Forester is useful for a much wider range of purposes. (Location 2655)

when the competitive challenge is very high, it may be necessary to accept these costs and design a tightly integrated response. With less challenge, it is normally better to have a bit less specialization and integration so that a broader market can be addressed. (Location 2656)

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. (Location 2664)

Resources are to coordinated activity as capital is to labor. It takes a great deal of labor to build a dam, but the dam’s services may then be available, for a time, without further labor. (Location 2675)

Finally, the cleverest strategies, the ones we study down through the years, begin with very few strategic resources, obtaining their results through the adroit coordination of actions in time and across functions. (Location 2683)

The peril of a potent resource position is that success then arrives without careful ongoing strategy work. (Location 2685)

Markeren(geel) - Chapter 9 Using Design > Locatie 2688 (Location 2687)

Yes, there was inventive genius in the creation of these strategic resources, but profits from those resources can be sustained, for a time, without genius. (Location 2688)

Existing resources can be the lever for the creation of new resources, but they can also be an impediment to innovation. (Location 2689)

strategic resources are embedded deeply within the human fabric of the enterprise, and most firms find this a difficult maneuver. (Location 2691)

A very powerful resource position produces profit without great effort, and it is human nature that the easy life breeds laxity. (Location 2699)

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. (Location 2700)

When the profits roll in, leaders will point to their every action with pride. (Location 2701)

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. (Location 2704)

To see effective design-type strategy, you must usually look away from the long-successful incumbent toward the company that effectively invades its market space. (Location 2709)

the incumbent laxity and inertia that gave these upstarts their openings applies to them as well. In time, most will loosen their tight integration and begin to rely more on accumulated resources and less on clever business design. (Location 2718)

Faced with the natural slowing of growth over time, they will try to create an appearance of youthful vigor with bolt-on acquisitions. Then, when their resource base eventually becomes obsolete, they, too, will become prey to another generation of upstarts. (Location 2721)

we should learn design-type strategy from an upstart’s early conquests rather than from the mature company’s posturing. (Location 2723)

Markeren(geel) - Chapter 9 Using Design > Locatie 2747 (Location 2746)

Designers learn from other designers over time, and the company accumulates these nuggets of wisdom by providing a good, stable place to work for talented engineers. (Location 2747)

it is usually quite difficult to convince buyers to pay an up-front premium for future savings, even if the numbers are clear. People tend to be more myopic than economic theory would suggest. (Location 2748)

Paccar’s strategy is based on doing something well and consistently over a long period of time. That has created difficult-to-replicate resources: (Location 2764)

This position and these kinds of slow-build resources are simply not available to companies, mesmerized by the stock market, who want big results in twelve months. (Location 2766)

Paccar’s design is expressed in actions that are consistent with its positioning and that are consistent over time. (Location 2773)

Markeren(geel) - Chapter 9 Using Design > Locatie 2776 (Location 2776)

They don’t need to hire a consulting firm to figure out their core competence or to find out who their buyers are. (Location 2776)

The various elements of Paccar’s strategy are not general purpose—they are designed to fit together to make a specialized whole. (Location 2777)

Good strategy is design, and design is about fitting various pieces together so they work as a coherent whole. (Location 2781)

Markeren(geel) - Chapter 9 Using Design > Locatie 2782 (Location 2782)

There is nothing magical about Paccar’s strategy. It is classic “hold the high ground” positioning. This defensive structure can probably be maintained as long as there are no significant structural changes in the industry’s economics or buyer behavior. (Location 2782)

good strategy looks past these issues to what is fundamental. From that perspective, the threats to the company are not specific new products or competitive moves, but changes that undermine the logic of its design. (Location 2786)

explore a particular mixture of policy and positioning called focus. (Location 2798)

most analysts stop there, gladly accepting this description of Crown’s strategy. (Location 2806)

In general, people will not push further because the analysis of unstructured information is hard, time-consuming work that requires both a rich knowledge of facts and well-developed skills in logic, deduction, and induction. (Location 2808)

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. (Location 2811)

There is very direct competition between close-by can makers, whose products have to be essentially indistinguishable. (Location 2819)

Plus, there is the constant threat that the buyer may simply purchase a can line and do the job itself. Why in the world would a company invest in such a difficult setting?” (Location 2820)

We want to do our own analysis. If you are serious about strategy work, you must always do your own analysis. (Location 2854)

A strategy is not necessarily what the CEO intended or what some executive says it is. 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. (Location 2854)

how can we independently identify a company’s strategy? We do this by looking at each policy of the company and noticing those that are different from the norm in the industry. (Location 2857)

When faced with a question or problem to which there is no obvious answer, it is human nature to welcome the first seemingly reasonable answer that pops into mind, as if it were a life preserver in a choppy sea. The discipline of analysis is to not stop there, but to test that first insight against the evidence. (Location 2880)

“It would be nice if focus always meant more profit. But it just isn’t so. (Location 2923)

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. (Location 2936)

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.* (Location 2939)

Virtually drowning in a twenty-four-hour barrage of superficial news and commentary, the students are surprised that the real world can sometimes have an inner logic that is not secret but that nevertheless remains unremarked. (Location 2946)

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. (Location 2951)

Growth based upon substitution has a clear ceiling and, once the conversion to the substitute has taken place, the growth grinds to a sudden halt. (Location 2983)

basic industry analysis and could have been easily predicted by the use of the popular Five Forces framework developed by Michael Porter.3 (Location 2991)

growth in a commodity—such as cement or aluminum or PET containers—is an industry phenomenon, driven by an increase in overall demand. (Location 3020)

turn, induces firms to invest in new capacity. But most of the profits of the growing competitors are an illusion because they are plowed back into new plant and equipment as the business grows. (Location 3021)

If high profits on these investments can be earned after growth slows, then all is well. But in a commodity industry, as soon as the growth in demand slows down, the profits vanish for firms without competitive advantages. (Location 3022)

The proposition that growth itself creates value is so deeply entrenched in the rhetoric of business that it has become an article of almost unquestioned faith that growth is a good thing. (Location 3025)

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 (Location 3093)

advantage is rooted in differences—in the asymmetries among rivals. (Location 3101)

It is the leader’s job to identify which asymmetries are critical—which can be turned into important advantages. (Location 3102)

No one has an advantage at everything. (Location 3125)

Teams, organizations, and even nations have advantages in certain kinds of rivalry under particular conditions. The secret to using advantage is understanding this particularity. (Location 3125)

Markeren(geel) - Chapter 11 Growth > Locatie 3127 (Location 3126)

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. (Location 3127)

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. In this situation, the Taliban has the advantage and is using it. (Location 3144)

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. (Location 3151)

For an advantage to be sustained, your competitors must not be able to duplicate it. Or, more precisely, they must not be able to duplicate the resources underlying it. (Location 3157)

More complex forms of isolating mechanisms include reputations, commercial and social relationships, network effects,* dramatic economies of scale, and tacit knowledge and skill gained through experience. (Location 3160)

Claims in advertising or sales pitches that a particular IT system or product or training program will provide a competitive advantage are misusing the term since an “advantage” on sale to all comers is a contradiction in terms. (Location 3167)

Being able to create successful strategies, not just once but over and over again, is a rare skill. (Location 3173)

Markeren(geel) - Chapter 11 Growth > Locatie 3198 (Location 3197)

“By providing more value you avoid being a commodity. (Location 3198)

“To me, a business is ‘interesting’ when I can see ways to increase its value. (Location 3207)

We can do more with these businesses because we don’t suffer the crazy pressures that are put on a public company.” (Location 3230)

The conundrum disappears when you carefully distinguish between competitive advantage and financial gain—many have assumed that they are the same thing, but they are not. (Location 3248)

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. (Location 3251)

a competitive advantage is interesting when one has insights into ways to increase its value. That means there must be things you can do, on your own, to increase its value. (Location 3257)

It will become truly interesting when someone gains special insights into unexploited ways to expand the value (Location 3272)

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. (Location 3275)

you cannot expect to make money—to get wealthier—by simply having, owning, buying, or selling a competitive advantage. (Location 3277)

wealth increases when competitive advantage increases or when the demand for the resources underlying it increases. (Location 3278)

increasing value requires a strategy for progress on at least one of four different fronts: • deepening advantages, • broadening the extent of advantages, • creating higher demand for advantaged products or services, or • strengthening the isolating mechanisms that block easy replication and imitation by competitors. (Location 3281)

Start by defining advantage in terms of surplus—the gap between buyer value and cost. (Location 3289)

Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both.* (Location 3290)

incentives alone are not enough. One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone knows what they are doing. (Location 3301)

improvements come from reexamining the details of how work is done, not just from cost controls or incentives. (Location 3304)

Companies that excel at product development and improvement carefully study the attitudes, decisions, and feelings of buyers. They develop a special empathy for customers and anticipate problems before they occur. (Location 3306)

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. (Location 3310)

Extending a competitive advantage requires looking away from products, buyers, and competitors and looking instead at the special skills and resources that underlie a competitive advantage. In other words, “Build on your strengths.” (Location 3318)

Markeren(geel) - Chapter 11 Growth > Locatie 3320 (Location 3319)

The idea that some corporate resources can be put to good use in other products or markets is possibly the most basic in corporate strategy.6 (Location 3320)

also the source of great mischief. Bemused by the idea that their company’s competitive strength lies in vaporous generalities such as “transportation,” “branded consumer products,” or “management,” companies may diversify into products and processes they know nothing about. (Location 3322)

Markeren(geel) - Chapter 11 Growth > Locatie 3330 (Location 3327)

Extensions based on proprietary know-how benefit from the fact that knowledge is not “used up” when it is applied; it may even be enhanced. By contrast, extensions based on customer beliefs, such as brand names, relationships, and reputation, may be diluted or damaged by careless extension. (Location 3330)

brand’s value comes from guaranteeing certain characteristics of the product. But those characteristics are not easy to define. (Location 3339)

To keep the faith and still expand the brand we came up with three basic guidelines. (Location 3352)

A competitive advantage becomes more valuable when the number of buyers grows and/or when the quantity demanded by each buyer increases. (Location 3364)

Technically, it is the scarce resources underlying the advantage that increase in value. (Location 3365)

Note that higher demand will increase long-term profits only if a business already possesses scarce resources that create a stable competitive advantage. (Location 3367)

Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems. (Location 3370)

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. (Location 3398)

Another broad approach to strengthening isolating mechanisms is to have a moving target for imitators. (Location 3423)

if you can continually improve, or simply alter, your methods and products, rivals will have a much harder time with imitation. (Location 3425)

continuing streams of innovations in methods and products are more difficult to imitate when they are, themselves, based on streams of proprietary knowledge. (Location 3430)

The high ground constitutes a natural asymmetry that can form the basis of an advantage. (Location 3437)

One way to find fresh undefended high ground is by creating it yourself through pure innovation. (Location 3441)

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. (Location 3444)

Important waves of change are like an earthquake, creating new high ground and leveling what had been high ground. (Location 3448)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3452 (Location 3448)

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. (Location 3452)

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 (Location 3455)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3475 (Location 3455)

all in all, the last fifty years’ changes have had a smaller impact on everyday life and the conduct of business than did the momentous changes that occurred from 1875 to 1925. (Location 3475)

Historical perspective helps you make judgments about importance and significance. (Location 3476)

seek to perceive and deal with a wave of change in its early stages of development. (Location 3478)

The challenge is not forecasting but understanding the past and present. (Location 3479)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3482 (Location 3481)

When change occurs, most people focus on the main effects—the spurts in growth of new types of products and the falling demand for others. You must dig beneath this surface reality to understand the forces underlying the main effect and develop a point of view about the second-order and derivative changes (Location 3482)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3532 (Location 3526)

Later that evening, back in my office, I transcribed my interview notes and reflected on what I had been told. (Location 3532)

The work of discerning whether there are important changes afoot involves getting into the gritty details. To make good bets on how a wave of change will play out you must acquire enough expertise to question the experts. (Location 3552)

As changes begin to occur, the air will be full of comments about what is happening, but you must be able to dig beneath that surface and discover the fundamental forces at work. Leaders who stay “above the details” may do well in stable times, but riding a wave of change requires an intimate feel for its origins and dynamics. (Location 3554)

Significantly, and often sadly, many crucial decisions do not appear to be decisions at the time. (Location 3582)

As is often the case, restating a general question in specific terms helped. (Location 3610)

Critically, none of the industry incumbents jumped to forcefully occupy this space. (Location 3700)

The saga of Cisco Systems vividly illustrates that the mix of forces is richer than just skill and luck. Absent the powerful waves of change sweeping through computing and telecommunications, Cisco would have remained a small niche player. (Location 3711)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3718 (Location 3715)

It is hard to show your skill as a sailor when there is no wind. (Location 3718)

three leaders to pull far ahead of the others. But in moments of transition, the old pecking order of competitors may be upset and a new order becomes possible. (Location 3721)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3723 (Location 3722)

“This course is labeled ‘advanced’ because we don’t understand it very well.” (Location 3723)

Fortunately, a leader does not need to get it totally right—the organization’s strategy merely has to be more right than those of its rivals. (Location 3727)

If you can peer into the fog of change and see 10 percent more clearly than others see, then you may gain an edge. (Location 3729)

To aid my own vision into the fog of change I use a number of mental guideposts. Each guidepost is an observation or way of thinking that seems to warrant attention. (Location 3732)

The first guidepost demarks an industry transition induced by escalating fixed costs. (Location 3734)

The second calls out a transition created by deregulation. (Location 3735)

The third highlights predictable biases in forecasting. (Location 3736)

A fourth marks the need to properly assess incumbent response to change. (Location 3738)

And the fifth guidepost is the concept of an attractor state. (Location 3739)

Many major transitions are triggered by major changes in government policy, especially deregulation. (Location 3754)

regulated prices are almost always arranged to subsidize some buyers at the expense of others. (Location 3759)

Markeren(geel) - Chapter 13 Using Dynamics > Locatie 3764 (Location 3763)

highly regulated companies do not know their own costs—they will have developed complex systems to justify their costs and prices, systems that hide their real costs even from themselves. (Location 3764)

people rarely predict that a business or economic trend will peak and then decline. If sales of a product are growing rapidly, the forecast will be for continued growth, with the rate of growth gradually declining to “normal” levels. Such a prediction may be valid for a frequently purchased product, but it can be far off for a durable good. (Location 3772)

Predicting the existence of such peaks is not difficult, although the timing cannot be pinned down until the growth rate begins to slow. (Location 3777)

faster the uptake of a durable product, the sooner the market will be saturated. (Location 3779)

faced with a wave of change, the standard forecast will be for a “battle of the titans.” This prediction, that the market leaders will duke it out for supremacy, undercutting the middle-sized and smaller firms, is sometimes correct but tends to be applied to almost all situations. (Location 3782)

The very foundations they had stood upon were eaten away by waves of change—the microprocessor, software, the deconstruction of computing, and the Internet. (Location 3794)

A third common bias is that, in a time of transition, the standard advice offered by consultants and other analysts will be to adopt the strategies of those competitors that are currently the largest, the most profitable, or showing the largest rates of stock price appreciation. Or, more simply, they predict that the future winners will be, or will look like, the current apparent winners. (Location 3801)

An industry attractor state describes how the industry “should” work in the light of technological forces and the structure of demand. (Location 3824)

Cisco System’s strategic vision of “IP everywhere” was actually a description of an attractor state. (Location 3828)

An attractor state provides a sense of direction for the future evolution of an industry. There is no guarantee that this state will come to be, but it does represent a gravitylike pull. (Location 3835)

The critical distinction between an attractor state and many corporate “visions” is that the attractor state is based on overall efficiency rather than a single company’s desire to capture most of the pie. (Location 3836)

the obvious attractor state for the power industry is nuclear power. (Location 3846)

The problem is the cost of physically printing and distributing the newspaper. (Location 3857)

Today’s advertisers are increasingly interested in more targeted media, ones that go beyond demographics and identify a consumer’s specific interests. (Location 3863)

With electronic access to information, there is simply no good reason to continue to bundle local, national, and world news together and add weather, sports, comics, puzzles, opinion, and personal advice to the mix. (Location 3868)

The strategic challenge for the New York Times and the Chicago Tribune is not “moving online” or “more advertising,” but unbundling their activities. (Location 3871)

(and available free online after one month). (Location 3878)

To reduce costs, partnerships with capital-city newspapers and independent journalists around the world will help (a strategy that would use the New York Times’ brand as a bargaining tool). (Location 3880)

In moving to an online model, a large traditional newspaper will need to place much more emphasis on aggregating content from a variety of sources and writers versus depending on staff journalists. (Location 3883)

To date, there is no successful online source of revenue other than advertising. (Location 3886)

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. (Location 3890)

In business, inertia is an organization’s unwillingness or inability to adapt to changing circumstances. (Location 3892)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 3896 (Location 3894)

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. (Location 3896)

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. (Location 3899)

Successful strategies often owe a great deal to the inertia and inefficiency of rivals. (Location 3902)

Understanding the inertia of rivals may be just as vital as understanding your own strengths. (Location 3905)

An organization’s greatest challenge may not be external threats or opportunities, but instead the effects of entropy and inertia. In such a situation, organizational renewal becomes a priority. (Location 3907)

Transforming a complex organization is an intensely strategic challenge. Leaders must diagnose the causes and effects of entropy and inertia, create a sensible guiding policy for effecting change, and design a set of coherent actions designed to alter routines, culture, and the structure of power and influence. (Location 3908)

Organizational inertia generally falls into one of three categories: the inertia of routine, cultural inertia, and inertia by proxy. (Location 3912)

The heartbeat of any sizable business is the rhythmic pulse of standard procedures for buying, processing, and marketing goods. (Location 3915)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 3918 (Location 3915)

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. (Location 3918)

An organization’s standard routines and methods act to preserve old ways of categorizing and processing information. (Location 3920)

Being right doesn’t always help the decision maker. (Location 4000)

Inertia due to obsolete or inappropriate routines can be fixed. The barriers are the perceptions of top management. (Location 4009)

If senior leaders become convinced that new routines are essential, change can be quick. (Location 4010)

Frustrated, I wrote the straightforward code for the demonstration myself in three weeks. (Location 4038)

The problem at AT&T was not the competence of individuals but the culture—the work norms and mindsets. (Location 4039)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 4041 (Location 4039)

Just as in a large university, the breakthroughs of a tiny number of very talented individuals had been used to justify a contemplative life for thousands of others. (Location 4041)

The strategy work I did at AT&T in 1984–85 was a waste. The hard-won lesson was that a good product-market strategy is useless if important competencies, assumed present, are absent and their development is blocked by long-established culture. (Location 4048)

We use the word “culture” to mark the elements of social behavior and meaning that are stable and strongly resist change. (Location 4056)

it is dangerous to think that organizational culture can be changed quickly or easily. (Location 4060)

The first step in breaking organizational culture inertia is simplification. (Location 4061)

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. (Location 4064)

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. (Location 4066)

culture—you cannot afford to have a high-performing unit with a terrible culture infect the others. (Location 4070)

Changing a unit’s culture means changing its members’ work norms and work-related values. (Location 4072)

In general, to change the group’s norms, the alpha member must be replaced by someone who expresses different norms and values. (Location 4074)

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. (Location 4081)

Inertia by proxy disappears when the organization decides that adapting to changed circumstances is more important than hanging on to old profit streams. (Location 4108)

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. (Location 4117)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 4121 (Location 4121)

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. (Location 4121)

Note: Dit

I call this a hump chart. Whenever you can assign profit or gain to individual products, outlets, areas, segments, (Location 4158)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 4162 (Location 4160)

If there are no cross-subsidies, the bars will rise smoothly to a maximum. But if some operations, some products, or some locations are subsidized by others, there will be a true “hump” on the chart—the bars will rise to a maximum and then begin to sag downward as the loss operations pull down the profits of the whole. (Location 4162)

If the operations are separable, then a distinct hump, sustained over time, indicates a lack of management. It is a way to see entropy at work. (Location 4165)

The key at Denton’s was to figure out why some locations performed better than others. (Location 4177)

helping customers to visualize how to use these materials at their own homes. (Location 4181)

None of this improvement came from a deep entrepreneurial insight or from innovation. It was all just management—just undoing the accumulated clutter and waste from years of entropy at work. (Location 4186)

Planning and planting a garden is always more interesting and stimulating than weeding it, but without constant weeding and maintenance the pattern that defines a garden—the imposition of a special order on nature—fades away and disappears. (Location 4187)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 4192 (Location 4188)

In this decay, one can see the value of competent management by its absence. (Location 4192)

Sloan’s product policy is an example of design, of order imposed on chaos. (Location 4216)

Making such a policy work takes more than a plan on a piece of paper. Each quarter, each year, each decade, corporate leadership must work to maintain the coherence of the design. (Location 4217)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 4218 (Location 4217)

Without constant attention, the design decays. (Location 4218)

If the design becomes obsolete, management’s job is to create a new way of coordinating efforts so that the competitive energy is directed outward instead of inward. (Location 4225)

The loss of coherence in General Motors’ product line dramatically increased the amount of internal competition among its brands. (Location 4239)

Markeren(geel) - Chapter 14 Inertia and Entropy > Locatie 4240 (Location 4239)

Business leaders tend to see competition as a cleansing wind, blowing away waste and abuse. But the world is not that simple. (Location 4240)

If you invest in advertising or product development to take business away from a competitor, that may increase the corporate pie. But if you invest to take business away from a sister brand or division, that may make the whole corporate pie smaller. Not only are the investments in advertising and development partially wasted, but you have probably pushed down the prices of both brands. (Location 4241)

Follow the story of Nvidia and you will clearly see the kernel of a good strategy at work: diagnosis, guiding policy, and coherent action. You will also glimpse almost every building block of good strategy: intelligent anticipation, a guiding policy that reduced complexity, the power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by the inertia and disarray of rivals. (Location 4263)

Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers. (Location 4338)

The benefit of a faster cycle is that the product will be best in class more often. (Location 4414)

Plus, there is the constant buzz surrounding new product introductions, a substitute for expensive advertising. (Location 4416)

as Nvidia’s leaders envisioned, the performance of graphics chips is experienced directly and immediately by users. (Location 4445)

It wasn’t about to redesign its whole development and fabrication process just for a sideline business.”4 (Location 4477)

Second, growth is the outcome of a successful strategy, and attempts to engineer growth are exercises in magical thinking. (Location 4490)

most useful shift in viewpoint: thinking about your own thinking. (Location 4519)

Our intentions do not fully control our thoughts. (Location 4520)

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. (Location 4522)

The most precious functional knowledge is proprietary, available only to your organization. (Location 4536)

A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment. (Location 4540)

As results appear, good leaders learn more about what does and doesn’t work and adjust their strategies accordingly. (Location 4540)

Barry’s attack hits home. I had once been an engineer, and I know an engineer doesn’t design a bridge that might hold its load. (Location 4557)

An engineer starts with complexity and crafts certainty. (Location 4559)

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. (Location 4565)

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. (Location 4566)

a good business strategy deals with the edge between the known and the unknown. (Location 4568)

That uneasy sense of ambiguity you feel is real. It is the scent of opportunity. (Location 4570)

we test a new strategic insight against well-established principles and against our accumulated knowledge about the business. (Location 4575)

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. (Location 4577)

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. (Location 4578)

A good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment. (Location 4581)

strategy is a hypothesis—an educated guess—about what will work. (Location 4585)

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.” (Location 4593)

In a changing world, a good strategy must have an entrepreneurial component. (Location 4596)

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. (Location 4598)

If everything worth knowing is already known, the problem of action reduces to crank winding. (Location 4607)

Markeren(geel) - Chapter 16 The Science of Strategy > Locatie 4608 (Location 4608)

The presumption that all important knowledge is already known, or available through consultation with authorities, deadens innovation. (Location 4608)

To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight. (Location 4611)

The heart of the scientific method is that the worth of a hypothesis is determined by empirical data drawn from the physical world, not by the author’s popularity, caste, or wealth. That is the radical revolution wrought by the Enlightenment. (Location 4655)

The ultimate worth of a strategy is determined by its success, not its acceptability to a council of philosophers or a board of editors. (Location 4659)

Good strategy work is necessarily empirical and pragmatic. (Location 4660)

Science is a method, not an outcome, and the basic method of good businesspeople is intense attention to data and to what works. (Location 4664)

To a certain kind of mind, an anomaly is an annoying blemish on the perfect skin of explanation. But to others, an anomaly marks an opportunity to learn something, perhaps something very valuable. (Location 4667)

“You see, but you do not observe.” The anomalies are not in nature but in the mind of the acute observer, revealed by a comparison between the facts and refined expectations. (Location 4694)

The cause of the Enlightenment may have been the Copernican revolution and the Protestant Reformation, but coffee was its daily fuel. (Location 4729)

coffeehouses stimulated energetic talk and debate. (Location 4732)

In England, tea eventually replaced coffee as the daytime beverage of choice. (Location 4736)

A deep problem Schultz faced was that his vision required a radical change in consumer tastes and habits. (Location 4757)

To expect to make money from a new business, the entrepreneur should know something that others do not, or have control of a scarce and valuable resource. (Location 4764)

One of the most important resources a business can have is valuable privileged information—that is, knowing something that others do not. (Location 4777)

once Schultz initiated business operations, he began to accumulate privileged information. (Location 4781)

In the technical jargon of international business, he gradually “localized” the Italian espresso bar to American tastes. (Location 4787)

Howard Schultz envisioned an Italian espresso bar in Seattle. He tested this hypothesis and found it wanting. But the test produced additional information, so he modified his hypothesis and retested. After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business. (Location 4797)

Markeren(geel) - Chapter 16 The Science of Strategy > Locatie 4799 (Location 4798)

This process of learning—hypothesis, data, anomaly, new hypothesis, data, and so on—is called scientific induction and is a critical element of every successful business. (Location 4799)

you should always consider the competition. What kept the competition at bay for so many years? (Location 4805)

It was also difficult, from a European perspective, to understand exactly what Starbucks was. (Location 4816)

And almost all of the drinks are milk based. In fact, viewed from Europe, Starbucks is more of a milk company than a coffee company and most of its drinks are simply coffee-flavored milk. (Location 4827)

Markeren(geel) - Chapter 16 The Science of Strategy > Locatie 4833 (Location 4832)

Joe Santos’s comments imply that incumbents had difficulty understanding Starbucks because it was vertically integrated—because it roasted, branded, and served its own coffee in its own company restaurants. (Location 4833)

Starbucks did not vertically integrate to purposefully confuse the competition. It did so in order to be able to mutually adjust multiple elements of its business and to capture the information generated by each element of its business operations. (Location 4834)

when the core of a business strategy requires the mutual adjustment of multiple elements, and especially when there is important learning to be captured about interactions across business elements, then it may be vital to own and control these elements of the business mix. (Location 4838)

All I had done was ask the obvious questions about strategy and write down his answers. (Location 4865)

Carnegie’s benefit was not from the list itself. It came from actually constructing the list. (Location 4890)

The idea that people have goals and automatically chase after them like some kind of homing missile is plain wrong. (Location 4891)

people can forget their larger purposes, distracted by the pull of immediate events. (Location 4894)

Carnegie paid because Taylor’s list-making exercise forced him to reflect upon his more fundamental purposes and, in turn, to devise ways of advancing them. (Location 4903)

When I asked about his division’s purpose, its competitive strengths and weaknesses, and the management issues he faced, he had to reflect and bring these issues to the forefront. (Location 4905)

The act of making a list forces us to reflect on the relative urgency and importance of issues. (Location 4909)

making a list of “things to do, now” rather than “things to worry about” forces us to resolve concerns into actions. (Location 4910)

Our own myopia is the obstacle common to all strategic situations. (Location 4916)

Being strategic is being less myopic—less shortsighted—than others. (Location 4917)

Being less myopic is not the same as pretending you can see the future. You must work with the facts on the ground, not the vague outlines of the distant future. (Location 4918)

being “strategic” largely means being less myopic than your undeliberative self. (Location 4921)

compare these pre-discussion commitments to their post-discussion views, a way of measuring the contribution of the discussion. (Location 4936)

I want to ask you how you arrived at your recommendations. How did you come up with your response to this assignment?” (Location 4941)

I called his advice an “insight” to suggest that he need not make up some grandiose story about his analytical prowess. (Location 4958)

“So, your initial idea was ... an intuition ... about an action. (Location 4964)

Did you go down any other avenues?” (Location 4967)

Of course, just because I had asked for only one recommendation didn’t mean he was constrained to consider only one approach. (Location 4969)

in the end, good ideas basically just pop into our heads. It’s called ‘insight.’” (Location 4978)

No one using this two-step approach had gone back and considered rethinking the initial identification of a key problem area. (Location 4997)

Most people, most of the time, solve problems by grabbing the first solution that pops into their heads—the first insight. (Location 5004)

Almost by definition, strategy is about very difficult yet very important issues. Because they are important situations, they may deserve more than a quick closure around our first hunch. (Location 5034)

Facing a complex situation like this makes most people uncomfortable. The more seriously you take it, the more you will see it as a real and difficult challenge that requires a coherent response. And that realization will, in turn, make you even more uncomfortable. (Location 5054)

You are not even sure what the problem is. (Location 5057)

Under pressure to develop a way out of the difficulty, that first idea is a welcome relief. (Location 5058)

The problem is that there might be better ideas out there, just beyond the edge of our vision. (Location 5060)

But we accept early closure because letting go of a judgment is painful and disconcerting. (Location 5061)

when we do come up with an idea, we tend to spend most of our effort justifying it rather than questioning it. (Location 5064)

our minds dodge the painful work of questioning and letting go of our first early judgments, and we are not conscious of the dodge. (Location 5065)

You can choose how you will approach a problem; you can guide your own thinking about it.” (Location 5068)

It is the ability to think about your own thinking, to make judgments about your own judgments. (Location 5070)

To create strategy in any arena requires a great deal of knowledge about the specifics. There is no substitute for on-the-ground experience. (Location 5073)

In strategy work, knowledge is necessary but not sufficient. There are many people with deep knowledge or experience who are poor at strategy. (Location 5078)

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. (Location 5079)

Note: Belangrijk

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. (Location 5096)

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. (Location 5103)

Markeren(geel) - Chapter 17 Using your Head > Locatie 5106 (Location 5105)

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. (Location 5106)

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. (Location 5107)

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. (Location 5111)

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. (Location 5113)

most of the time, when asked to generate more alternatives, people simply add one or two shallow alternatives to their initial insight. (Location 5137)

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. (Location 5139)

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. (Location 5141)

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. (Location 5143)

Markeren(geel) - Chapter 17 Using your Head > Locatie 5146 (Location 5143)

It takes mental toughness to pick apart one’s own insights. In my own case, I rely on outside help—I invoke a virtual panel of experts that I carry around in my mind. (Location 5146)

This panel of experts is a collection of people whose judgments I value. I use an internal mental dialogue with them to both critique my own ideas and stimulate new ones. I try to do this before putting my ideas before others. (Location 5148)

we are adept at recognizing and comprehending well-integrated human personalities. (Location 5150)

Thinking through how a particular well-remembered expert might respond to a problem can be a richer source of criticism and advice than abstract theories or frameworks. (Location 5151)

Markeren(geel) - Chapter 17 Using your Head > Locatie 5155 (Location 5154)

When I face a problem, or have generated a first hunch, I turn to this panel and ask, “What is wrong with this approach to the situation? What would you do in this case?” (Location 5155)

What you get from a person is not a conceptual framework or theory, but a viewpoint integrated into a personality. (Location 5182)

good strategies are usually “corner solutions.” That is, they emphasize focus over compromise. They focus on one aspect of the situation, not trying to be all things to all people. (Location 5189)

When you build your own panel of experts you go one step farther, trying to shape your understanding of their teachings into a virtual personality. (Location 5194)

Judgment begins with knowing yourself, your abilities and biases. (Location 5200)

you should first commit your judgments to writing. (Location 5206)

To commit to a judgment is to choose an interpretation of which issues are critical and which are not and then to choose an implied action. (Location 5214)

By committing to a judgment—especially a diagnosis—you increase the probability that you will disagree with some of the assessments of others, and thereby increase the chance of learning something. (Location 5215)

Markeren(geel) - Chapter 17 Using your Head > Locatie 5217 (Location 5216)

The same principle applies to any meeting you attend. What issues do you expect to arise in the meeting? Who will take which position? Privately commit yourself in advance to some judgments about these issues, and you will have daily opportunities to learn, improve, and recalibrate your judgment. (Location 5217)

Note: Meeting voorbereiden

Good strategy grows out of an independent and careful assessment of the situation, harnessing individual insight to carefully crafted purpose. (Location 5224)

Markeren(geel) - Chapter 18 Keeping Your Head > Locatie 5226 (Location 5224)

Being independent without being eccentric and doubting without being a curmudgeon are some of the most difficult things a person can do. (Location 5226)

Markeren(geel) - Chapter 18 Keeping Your Head > Locatie 5290 (Location 5289)

The concept of cost is tricky. People talk as if products have costs, but that is shorthand easily leading to confusion. Choices, not products, have costs. (Location 5290)

Their huge valuations were taken as strong proof of sound, even brilliant, business strategies. (Location 5354)

Why bother to do the hard work of evaluating the logic of a business strategy if the all-knowing stock market does a better job? (Location 5356)

The telecom industry was used to charging high prices for handling “corporate data” and failed to think through the obvious: The rapid growth of Internet traffic was largely a result of its near-zero price. (Location 5384)

Markeren(geel) - Chapter 18 Keeping Your Head > Locatie 5395 (Location 5392)

sufficiently complex logical systems are “incomplete.” That is, they contain statements and propositions that cannot be judged true or false within the logic of the system. (Location 5395)

an un-decidable proposition. To answer this question one would have to look outside the closed system and make an independent estimate of the situation. (Location 5402)

It is too-easy credit, showing up as overleveraged borrowers, that transmits shocks from company to company, from person to person, from sector to sector, and from nation to nation, turning what would otherwise be individual losses into a collective calamity.5 (Location 5420)

As in other credit bubbles in other times and other places, things seem fine as long as the value of assets put up as collateral continue their bubbly rise in value. (Location 5430)

As asset prices begin to drift downward, investors who have recently bought inflated assets using high leverage suddenly realize there is no ground under their feet. The more nimble rush to sell before their equity is wiped out. And those sales, in turn, drive down prices faster. (Location 5436)

This feedback from debt to asset sales, to falling asset prices, back to more defaults and yet more asset sales, is called “debt deflation.” (Location 5442)

There was engineering overreach, where designers built systems whose failure modes and failure consequences exceeded their ability to comprehend or analyze. (Location 5460)

the smooth-sailing fallacy, where people assume that a lack of recent tremors and storms means that there is no risk. (Location 5464)

There are many organizations and individuals working under risk-seeking incentives. (Location 5472)

There is social herding. When we don’t know about something, it may be sensible to look at the behavior of others, assuming that at least some of them know things that we do not. (Location 5480)

Finally, there is the inside view, a label given by Nobel laureate Daniel Kahneman and coauthor Dan Lovallo to the tendency to ignore related pertinent data—to believe that “this case is different.”7 (Location 5484)

Markeren(geel) - Chapter 18 Keeping Your Head > Locatie 5488 (Location 5488)

An important virtue of a good leader is putting the situation in perspective and having cool-minded judgment. Both virtues help mitigate the bias inherent in social herding and the inside view. (Location 5488)

In the 2008 financial and economic crisis, such inside-view premises were widely held and expressed, rising above mere assertion and becoming doctrines—principles that, though unprovable, serve as the basis for argument, policy, and action. (Location 5495)

During most of the twentieth century, the focus switched to home ownership. (Location 5563)

In praising America’s “deep and liquid” financial markets, the herd conveniently skipped over the giant bag of flammable gas keeping those markets buzzing—easy credit, overleveraging, a vast expanse of unpriceable derivative securities, long-term assets financed with overnight borrowing from trigger-happy counterparties, and huge top management bonuses for taking on hidden risks. (Location 5587)

In parallel (Location 5590)

Why weren’t alarm bells ringing? Because the government doesn’t include home prices in its inflation index—the index includes only the rental rate of homes. (Location 5600)

In addition, (Location 5602)

It takes long-term real-world stress testing in a wide variety of conditions—through up and down real estate markets, up and down economic cycles, low and high interest rates, low and high inflation, and other conditions—together with various combinations of all of these, to warrant the kind of confidence these financial luminaries exuded. (Location 5628)

Markeren(geel) - Chapter 18 Keeping Your Head > Locatie 5631 (Location 5628)

Social herding presses us to think that everything is OK (or not OK) because everyone else is saying so. (Location 5631)

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. (Location 5633)