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Book Summary: Good Strategy, Bad Strategy

A strategy contains 3 building blocks:

  1. Diagnosis - Identify critical instances to forward progress
  2. Guiding Policy
  3. Coherent set of actions

Use your relative advantages to impose out-of-proportion costs on the opposition and complicate their platform of competing with you.

Bad Strategy

Bad strategy is not simply the absence of good strategy.

  1. Fluff - a form of gibberish (or restatement of the obvious) masquerading as strategic concepts.
  2. Failure to meet the challenge - Failure to define or recognise the challenge.
  3. Mistaking goals for strategy - Mistake statements of desires for plans to overcome obstacles (Football coach)
  4. Bad strategic goals - Objectives are bad when they fail to address critical issues or are impractical

Start by working to discover the most promising opportunities. Look at both internal (fixing bottlenecks and constraints in the way people work) or external:

  1. Use a small team
  2. Identify what is changing in your business

Bad Strategic Objectives

Goal: overall values and desires
Objective: specific operational targets

The US has the goals of freedom, justice, peace, security etc. It is strategy which transforms these vague goals into a coherent set of actionable objectives (defeat Taliban).

Dogs Dinner Objectives

  • Long list of things to do
  • Sweep a whole day's collection of "things to do" into a plan
  • Watch out for "long term"

Blue sky objectives:

  • Restatement of the desired state of affairs or the challenges

When the leader characterises the challenge as underperformance it sets the stage for bad strategy. Underperformance is a result. The true challenge are the reasons for the underperformance.

Reasons for bad strategies

1 - Unwillingness or inability to choose: strategy involves focus and therefore choice.

Note: Only the prospect of choice inspires people's best arguments about the pluses of their own proposals and the negatives of others.

Note: Asking a group to reach a consensus is a bad idea

"If we got kicked out of the board brought in a new CEO, what do you think she would do?" - Andy Grove

2 - Template-style strategy: Vision, Mission, Values, Strategy

Good Strategy

The basic underlying structure of a good strategy is the kernel.

The kernel consist of three elements:

  1. Diagnosis that defines or explains the nature of the challenges. A good diagnosis simplifies the overwhelming complexity of reality by identifying certain aspects of the situation as critical.
  2. Guiding policy for dealing with the challenge. This is the overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.
  3. 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.

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A good diagnosis is one that promises leverage over outcomes. In other words, it's not useful having a diagnosis that explains the situation accurately but doesn't provide a chance at making improvements.

E.g. Student performance being a result of social class is not useful to a school board.

Guiding Policy

The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis. A good guiding policy takes the obstacles identified in the diagnosis by creating or drawing upon sources of advantages.

A guiding policy creates advantages by:

  1. Anticipating the actions and reactions of others
  2. Reducing the complexity and ambiguity in the situation
  3. Exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation.
  4. Creating policies that are coherent, each building o the other.

Coherent Action

Strategy is visible as coordinated action imposed on a system. It is an exercise in centralised power.

Decentralised decision making may fail when either the. Costs or benefits or action are not borne by the decentralised actions. e.g. salespeople love to please customers while manufacturing people love long uninterrupted production runs.

Using Leverage

A good strategy draws power from focusing minds, energy and action. That focus, channeled at the right moment onto a pivotal objective, can produce a cascade of favourable outcomes.

  1. Anticipation
  2. Pivot points
  3. Concentration

Proximate objectives

A proximate objective names a target that the organisation can reasonably expect to hit.

e.g. how would the moon surface be? Pick option that allows for easy design because other options were impossible.

The more uncertain the future, the more essential it is to "take a strong position and create options", not look far ahead.

Value Creating Changes

1 - Deepening Advantages: Start by defining advantage in terms of surplus - the gap between the buyer value and cost. Deeping the advantage means widening this gap by either increasing value to buyers, reducing cost or both. e.g. Improve brick laying by 100% through careful study.

2 - Broadening the extent of advantage: bring an existing competitive advantage into new field and competitors. e.g. eBay extending PayPal into cellphone payments.

Extending competitive advantage requires looking away from products, buyers and competitors and looking instead at special skills and resources underling the competitive advantage.