"Strategy" is a term that anyone throws around these days. Not Rumelt: he knows exactly what it is, what it means, and has endless examples of his own to back it up. The wisdom of decades, packed into an endlessly fascinating book. Enormously valuable.
"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." (Page 2)
"Strategy" is a word that has lost a lot of its meaning. It's used sloppily and is usually completely misunderstood. To know what it is, it's important to know both what it is, and what it isn't.
"The first natural advantage of good strategy arises because other organizations often don't have one. And because they don't expect you to have one, either. A good strategy has coherence, coordinating actions, policies, and resources so as to accomplish an important end. Many organizations, most of the time, don't have this. Instead, they have multiple goals and initiatives that symbolize progress, but no coherent approach to accomplishing that progress other than "spend more and try harder." (Page 11)
Strategy is "strength applied to the most promising opportunity." But strength also comes from having a coherent strategy, as well as from subtle shifts in viewpoint that create new positions of strength and weakness.
Before Steve Jobs rejoined Apple in the mid 90s, is was struggling. Taking the helm again, he took all of the classic "turnaround" moves:
Jobs himself had said that the product lineup was confusing. Asked about what is his strategy was after the above successful turnaround, he simply answered: "wait for the next big thing." That is, to hold fire until he could see the next massive opportunity, then go after it. This came with the iPod. Then the iPhone.
The success of Desert Storm was another example of good strategy, that of envelopment. Distract the main bulk of the force with direct and naval feints while bringing the bulk of the force (a quarter million troops total) quietly up and around the flank to perform a "left hook." The war lasted a total of 100 hours.
Why was this a surprise? This type of strategy is known doctrine of the United States Army. It was a surprise to Saddam Hussein because strategy is rarely so well executed.
"We are surprised when a complex organization, such as Apple or the U.S. Army, actually focuses its actions. Not because of secrecy, but because good strategy itself is unexpected." (Page 19)
Good strategy demands leaders who are capable of saying no to competing and conflicting demands, ideas and interests.
The power of a shift in persepctive:
There are four major hallmarks of bad strategy:
"Not miscalculation, bad strategy is the active avoidance of the hard work of crafting a good strategy. One common reason for choosing avoidance is the pain or difficulty of choice. When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence." (Page 58)
Bad strategy happens because of the inability or lack of willingness to make difficult choices. You must set aside some options in favour of others. This will hurt some people, and it will be difficult.
If a "strategy" receives universal buy-in, this means no difficult decisions have been made.
The idea that, for example, charismatic leadership is possible by the numbers. If you fill out a "vision, mission, values, strategies" sheet you found online, you usually just have gibberish. This is paint by numbers, and achieves little.
"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. From small boutiques to the large IT-based firms trying to break into strategy work, consultants have found that template-style strategy frees them from the onerous work of analyzing the true challenges and opportunities faced by the client. Plus, by couching strategy in terms of positives-vision, mission, and values no feelings are hurt." (Page 68)
New thought believes that thinking about success means success will happen, and the same for failure. We see this in things like manifestation and The Secret.
But it's also seeped into corporate strategy and speech. "Shared visions" are from nothing if not New Thought gibberish.
"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." (Page 74)
"I do not know whether meditation and other inward journeys perfect the human soul. But I do know that believing that rays come out of your head and change the physical world, and that by thinking only of success you can become a success, are forms of psychosis and cannot be recommended as approaches to management or strategy." (Page 76)
Good strategy has three core elements:
"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." (Page 98)
Strategic leverage happens when a mixture of three things align.
Anticipation: consider the habits, behaviours, and likely anticipation of others. Consider how systems work, and extant forces that you will have to deal with. It is important to also be able to see/predict what direction things are actually moving in.
Pivot points: these magnify the effect of a given effort, and can be very different depending on the situation even where many other things remain equal.
Concentration: where a focus on fewer things generates a larger payoff in the long-run.
"A proximate objective names a target that the organization can reasonably be expected to hit, even overwhelm." (Page 106)
There is often a lot of ambiguity in any given situation. Proximate objectives give people problems they can actually solve.
Consider the original moon shot: JFK committing the United States to landing on the moon. It was a proximate objective because, with the right investment, it was possible. It would also shortcut and undermine the Soviet advances where they were beating the US, reframe the game, and be an incredible achievement.
A good example of a non-proximate objective is "the war on drugs." It's impossible to achieve within current frameworks and politics, and it also no clear success criteria.
Consider the belief that dynamic situations require more planning and longer thought out objectives. The opposite is true: in a more dynamic situation you have less foresight and therefore need much more proximate objectives.
"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." (Page 116)
Chain link systems require improvements to many different elements at once to see an overall improvement. For example, to improve the supply of goods into a developing country it won't be enough to build a large, modern port. You will also need to upgrade the road and/or rail systems to distribute the cargo. You also have to consider education for specialist jobs, the availability of necessary vehicles, the existence of companies to move that freight and so on.
The trick here is recognising that multiple problems must be solved in a specific order, with few gains to begin with. The focus must be on the bottlenecks.
A good example of this in the real world is Ikea. You cannot just copy one element of Ikea, like the "flat pack" design and hope to take their market share. You also need the enormous stores carrying large amounts of inventory, the supply chain to keep these stores stocked, the manufacturing facilities to handle the global volume to feed this supply chain, and the design and engineering teams to create the furniture to begin with.
"A design-type strategy is an adroit configuration of resources and actions that yields an advantage in a challenging situation. 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." (Page 134)
There are three elements to a strategy with good design:
The greater the challenge the more of a tightly designed focus you'll need. Upstart "disruptors" who displace complacent incumbents will always have a well-designed strategy.
"At the core, strategy is about focus, and most complex organizations don't focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to achieve a breakthrough in any of them." (Page 150)
Rumelt uses the example of an incredibly successful canning company from the mid-to-late twentieth century: Crown, Cork and Seal.
Unlike competing companies, CC&S did not do large runs for large customers. Instead, they focused on short runs only. This meant they were satisfying two very different types of demand, when compared to their larger cost-driven competitors:
This meant they focused on rapid response, technical assistance, and providing more manufacturing capacity allowing for more customers per plant. Putting all of this together, the focus is on customers who fit a specific profile who allow them to have higher margins.
"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." (Page 156)
Growth for the sake of growth is bad. Especially when it comes to M&A.
Good, healthy growth is not engineered. It is a result of:
"No one has an advantage at everything. Teams, organizations, and even nations have advantages in certain kinds of rivalry under particular conditions. The secret to using advantage is understanding this particularity. You must press where you have advantages and side-step situations in which you do not. You must exploit your rivals' weaknesses and avoid leading with your own." (Page 161)
When you win the 1500m race, it's a good bet to back you for the 5k race. Maybe even the 10k. But not wrestling, and not wrestling a gorilla. For a company who develops a great product, but then tries to pivot that into an entirely different business, it's perhaps a high risk activity and unlikely to work because that is not where your advantage lies.
Consider the US Army vs the Taliban. The former used massive force at high cost to invade and occupy a state. But their enemy had a significant advantage over them: they were embedded and fractured. No force, no matter how big, could "win" over this advantage.
Increasing value requires a strategy to progress on at least 1 of 4 fronts:
"An exogenous wave of change is like the wind in a racing boat's sails. It provides raw, sometimes turbulent, power. A leader's job is to provide the insight, skill, and inventiveness that can harness that power to a purpose. You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground-become valuable and defensible as the dynamics play out." (Page 179)
Industries are often more stable than people like to believe. Change is not that massive, and not that constant. But when change does happen, it's important to take time to understand the forces that are really at work.
"Therefore, seek to perceive and deal with a wave of change in its early stages of development. The challenge is not forecasting but understanding the past and present." (Page 180)
For example, take Cisco in the 90s. The dynamic of the time was in the midst of a great shift from the large-scale manufacturing and engineering of computer systems toward small amounts of extremely high value software. Cisco recognised this and capitalised on it.
Key to understanding the dynamics at work in any given situation is understanding the gritty detail of something. It took Intel 15 years before they realised they could make a general purpose processing chip that could later be specialised with software. Before this they would create a new chip each and every time.
Some guideposts for being "more right" than your rivals:
Inertia: resistance to change (harder to change direction the bigger something is)Entropy: the increase in disorder and chaos over time.
Inertia of routine: when old processes and systems continue to prevail even when the landscape and conditions have changed. E.g. the airline industry in America after deregulation still making calculations based on government subsidies and fixed ticket prices.
Inertia of culture: culture is made of stable, established behaviours that are resistant to change.
"A good product-market strategy is useless if important competencies, assumed present, are absent and their development is blocked by long established culture." (Page 210)
How to change/get rid of it:
Inertia by proxy: holding onto old profit streams even when the game has significantly changed (they'll disappear eventually).
Entropy: strategies with clear design peter out over time if they are not well-managed and protected. E.g. General Motors.
"An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism. Good strategy rests on a hard-won base of such knowledge, and any new strategy presents the opportunity to generate it. A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment. As results appear, good leaders learn more about what does and doesn't work and adjust their strategies accordingly." (Page 241)
Hypothesis: what might work. An idea to be tested.
We have what is already known which we can imply from deduction, but we also have: induction, analogy, judgment, and insight. It's important to test hypotheses over time. We can use this time to also gather proprietary information.
There is a difficulty in working around our own limitations and biases. "Being strategic" usually means being less myopic. While finding an initial solution feels comforting, it crowds out other possibilities—one or two of which may be better versions.
"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. It is so ill-structured." (Page 266)
Techniques:
A useful exercise is to commit to your assessment of a given situation by writing down your prediction about what will happen and why. This allows you to review those assessments and refer back to them, giving you the chance to evaluate the quality of your judgments.
I send updates to a few hundred people anytime I've got something worth sharing. New articles, new book notes, new commentary.
