Book Summary — Good Strategy, Bad Strategy
The difference and why it matters
You can find all my book summaries — here.
Great book — one of my favourites as I read it in a very relevant time of my journey. It really makes you realise how few companies in the world actually have a good strategy and what a good strategy even is.
1 paragraph summary:
A Good Strategy identifies the one or two critical issues — and then focuses and concentrates action and resources on them. It doesn’t just draw on existing strength; it creates strength through the coherence of its design.
Part I — Good and Bad Strategies
Good strategy almost always looks simple and obvious and does not take a thick deck of Powerpoint slides to explain. It does not pop out of some “strategic management” tool, matrix, chart, triangle, or fill-in-the-blanks scheme. Instead, a talented leader identifies the one or two critical issues in the situation — and then focuses and concentrates action and resources on them.
A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. And the greater the challenge, the more a strategy focuses and coordinates efforts to achieve a powerful competitive punch or problem-solving effect.
Unlike a stand-alone decision or a goal, a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.
A good strategy has an essential logical structure that I call the kernel. The kernel of a strategy contains three elements:
- a diagnosis
- a guiding policy and
- coherent action.
The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction but not the detail. Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.
The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity.
A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design.
The creation of new strengths through subtle shifts in viewpoint. An insightful reframing of a competitive situation can create whole new patterns of advantage and weakness. The most powerful strategies arise from such game-changing insights.
The first natural advantage of good strategy arises because other organisations often don’t have one. And because they don’t expect you to have one. […] Instead, they have multiple goals and initiatives to symbolize progress, but no coherent approach to accomplish that progress other than “spend more and try harder”.
Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organisation does not do as it is about what it does.
Discovering Power
…consider the the competition even when no one tells you to do it in advance.
Use your relative advantage to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.
Bad Strategy
Fluff — is a form of gibberish masquarading as strategic concepts or arguments.
Failure to face the challenge — when you cannot define the challenge you cannot evaluate a strategy and improve it
Mistaking goals for strategy — often they are just statements of desire than plans for overcoming obstacles
Bad strategic objectives — when they fail to address critical issues or when they are impracticable
If you fail to identify and analyse the obstacles you don’t have a strategy. All you have is a stretch goal, a budget, or a list of things you wish would happen.
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.
End result should be a strategy that is aimed at channelling 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.
Goals = values or desires
Objective = operational targets
Strategy = transforms vague goals into actionable, coherent objectives
Good strategy focuses on one or very few pivotal objectives.
Why so much bad strategy?
- When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence.
- Siren song of template-style strategy — filling out the blank vision, mission, values and strategies
- New thought — the belief that all you require is positive mental attitude
Kernel of Good Strategy
- A diagnosis that defines to explains the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical. “What’s going on here?”
- 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. Like guardrails on the highway, the guiding policy directs and constraints action without fully defining its content. Good guiding policy are not goals or visions or images of the desirable state. Rather, they define a method of grappling with the situation and ruling out a vast array of possible actions.
- 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.
There is no greater way for sharpening strategic tools than the necessity to act.
“What would need to happen if this would absolutely have to happen?” Make the hard choice
Part II — Sources of Power
Using Leverage
Strategic leverage arises from a mixture of anticipation, insight into what is most pivotal or critical in a situation, and making a concentrated application of effort.
Anticipation 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 in change.
To achieve leverage, you must have insight into a pivot point that with magnify the effects of focused energy and resources. 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.
Proximate Objective
A target that the organisation can reasonably expect to hit, even overwhelm.
Leaders job is to reduce ambiguity and pass on simpler, solvable problems.
Chain — link systems
- Identify bottlenecks
- Incremental changes sometimes doesn’t work and brings the system to a stop
Focus
- Coordination of policies that produces extra power through their interacting and overlapping effects
- Demands application of that power to the right target
At the core, strategy is about focus, and most complex organisations don’t focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them.
Growth
Healthy growth is not engineered (ie through acquisition). It is the outcome of growing demand for special capabilities or of expanded or extended capabilities. It is the outcome of having superior products or skills.
Using Advantage
It is a leader’s job to identify asymmetries and which ones are critical, which can be turned into advantages.
No one has advantage at everything. The key is to press where you have an advantage and to side-step situations in which you don’t.
Deepening an advantage means widening the gap by either increasing value to buyers, reducing costs, or both.
Change — guideposts
It is hard to show the skill of a sailor when there is no wind.
But in the moment of transition the pecking order changes.
Guideposts
- Rising fixed costs — ie product development costs
- Deregulation
- Predictable biases — economic and demand downturns
- Incumbent response — resisting transition
- Attractor states — what should an industry look like
Inertia and Entropy
Inertia — unwillingness to change or adapt
Entropy — System’s degree of disorder always increases in an isolated system
Routines serve to preserve old ways of dealing with things.
Inertia might be internal as well as for customers.
Entropy is the consultants bread and butter — cutting out the growing weeds.
Putting it together
Good strategy
- Intelligent anticipation
- Guiding policy that reduces complexity
- Power of design, focus, using advantage, riding a dynamic wave of change, and the important role played by inertia and disarray of rivals
Part III — Thinking like a strategist
In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or to a customer. Advice to do this is both often given and taken. Yet the advice skips over what is possibly he most useful shift in viewpoint: thinking about your own thinking.
Anomalies — are facts that do not fit received wisdom. It can mark an opportunity to learn something, perhaps something valuable.
Scientific induction — hypothesis, data, anomaly, new hypothesis, data, etc
Use your head
- Construct a list — thinking through the list helps more than the list itself
- Do a complete analysis and don’t just opt-in for the first solution that comes to mind
Improve on strategy
- Have tools to fight myopia and guide attention
- Question your own judgement
- Record judgements so you can learn from them
Tools to help thinking
- Think about first principles — not what is done but by WHY it’s done
- Create-Destroy — try hard to destroy current alternative
Human biases
- Engineering overreach — so complex nobody understands it
- Smooth sailing fallacy — things have been so good for so long nothing will change
- Risk seeking incentives — misalignments of incentives where someone disproportionately wins / loses out on risk
- Social herding — belief in the mass opinion
- Inside view — belief that “this case is different”
