10 Ingredients for a Powerful Strategy
What does a good strategy look like?
Is a good strategy a detailed plan crafted based on a vision, is it a set of guiding rules to keep you on the right path or is it just a collection of goals?
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| Photo by Jeehots.com on Unsplash |
As a Digital Transformation Manager, I’ve been tasked with creating and maintaining a strategy for the digital transformation of my company. To support this, I turned to various sources, including Richard Rumelt’s book “Good Strategy, Bad Strategy.” It was an eye-opener.
In this article, I’ll share the key insights with you!
Good strategy or bad strategy?
Parts of a good strategy
- A good strategy is coherent. Its coordinating guidelines and actions work well together and are aligned.
- It involves recognizing your strengths and your opponent’s weaknesses. It also creates new strengths by changing your perspective.
- A good strategy is often surprisingly simple. Instead of a long list of measures, a few well-thought-out and determined measures are better.
Warning signs for a bad strategy
- A bad strategy contains a lot of fluff. Abstruse formulations are used to explain a simple thing.
- It doesn’t recognize and accept challenges.
- It confuses goals with a strategy.
- A bad strategy consists of measures that cannot be implemented.
Why is there so much bad strategy?
The problem is that there exist many “fill out the blank” templates for creating a strategy (vision, mission & strategy).
Don’t get me wrong, these templates can definitely be useful. However, a good strategy needs more than that, otherwise you are just creating fluff. You’ll end up with a formulation that may sound right but lacks a strategic core.
Furthermore, you need to decide. You need to focus on a few important points and therefore, creating a good strategy means saying “no” to many things.
Ingredients for a good strategy
(1) The kernel of a good strategy
According to the Cambridge Dictionary, a strategy is a detailed plan for achieving success in situations such as war, politics, business, industry, or sport, or the skill of planning for such situations.
In this definition, “success” is key - without a challenge, there’s no success. So, a strategy is always tied to facing a challenge. Understanding this, we can outline the kernel of a good strategy:
- Diagnosis (description of the challenge): You can only develop a good strategy if you understand the initial situation well. A good practice to understand the as-is situation is, for example, to ask many questions.
- Policy, guidelines (to deal with the challenge): Guidelines, unlike a vision, are intended to provide directions for action. A vision is more vague. But it is an action that brings an endeavor forward and the precursor to strategic actions are guidelines.
- Coherent actions (to implement the guidelines): A strategy is only really a strategy if it also contains actions and measures. The actions must be clear and work well together.
(2) Using leverage
This consists of two parts:
- Finding a good pivot point (where do you cause the most change).
- Focusing resources: If you focus on a few topics, the potential overall effect is much more significant than if you spread the resources widely.
A good strategy shouldn’t be too broad. You can’t excel in everything. Only by focusing your energy on a few key areas, you can achieve remarkable results.
(3) Use proximate objectives
Don’t over-define.
Life is so turbulent that you could plan very far ahead.
Don’t get me wrong here. It is important to plan and essentially a strategy is a detailed plan for achieving success. A good strategy doesn’t dictate every single action (that’s more of a short-term tactic). Instead, it outlines key principles to guide you in different situations.
The specific solutions are figured out as situations unfold.
Like explorers using nearby landmarks to navigate unknown terrain, proximate objectives help you make steady progress. They keep you focused, unlike distant goals that can feel overwhelming and vague.
(4) Designing a strategy
A strategy is often seen as a decision from existing alternatives.
However, a good strategy is more than that - it is a design (cf. Designing Your Life). Strategy development is a creative process where different ideas are blended to create the best overall solution.
(5) Focus and growth
A good strategy focuses the forces of an organization in a few directions instead of tackling many issues simultaneously with a watering can. Only if you focus, can you make the best use of the leverage you have.
It is similar to growth.
Growth must be purposeful and lead to strengthening. Growth for its own sake doesn’t bring added value.
(6) Use your advantages
Advantages arise when there are differences (e.g. between rivals).
It is an art to exploit the differences in such a way that it is to your advantage. There exist four “value-creating changes”:
- Deepening existing advantages
- Broadening the impact of advantages
- Increasing the demand for advantageous products or services
- Strengthening isolation mechanisms that enable easy replication by competitors
(7) Use Dynamics
Change is where you can find the biggest opportunities for strategic advantage.
An example is that the combination of standard hardware and custom software has prevailed.
Why?
Because it allows super-fast and simpler testing in design cycles, or other words: it enables dynamic development.
When developing a strategy, use these guidelines to harness the power of change:
- Increasing fixed costs (for opponents)
- Deregulation (as an opportunity)
- Predictable biases
- Incumbent response (cf. inertia & entropy)
- Attractor States (e.g. Cisco’s strategy of standardization with IP)
(8) Inertia
There exist three types of inertia:
- the inertia of routine
- the inertia of culture and
- a proxy inertia.
An example of (1), is the deregulation of American aviation, which caused some companies to go bankrupt (including Continental) because they did not adapt their strategies and remained in their routine.
For (2), there is the example of AT&T, which had a culture that encouraged basic research but pushed applied research into the background.
Proxy inertia (3) refers to inertia from outside (e.g. customers). A prominent example here is the T1 lines (old expensive Internet lines) that were used by established companies. In order not to cannibalize their business, they did not push DSL (which was about 10 times cheaper) any further. Customers were not agile enough to switch immediately so it worked for a while. But as the competition grew and DSL became even more sophisticated, the sluggish companies failed.
(9) Entropy
Entropy in social science is the amount of order or lack of order in a system (cf. Cambridge Dictionary) - so it is essentially a measure of chaos.
In the context of strategy entropy is the tendency of companies to drift into chaos with the wrong, incoherent management.
(10) Thinking like a strategist
(10a) The science of strategy
Developing a good strategy or business model is similar to scientific reasoning. You work with the unknown, formulate hypotheses and carry out experiments - this is how science and its inductive part have worked for a long time.
This is also true for creating strategies (cf. also The Lean Startup): creating a strategy is always working with uncertainty.
The history of Starbucks is a great example of that.
Back in the day, Starbucks wasn’t all about selling coffee - they started as coffee bean traders.
The Starbucks employee Howard Schultz who learned about the espresso bar culture in Italy wanted to implement a similar concept in Seattle with the (then) Starbucks.
When he was not granted the funds, he started his own business and created an espresso bar (in Americanized form) in an iterative process. He quickly opened more stores and eventually bought Starbucks - he kept the name.
The key to Schultz’s success? He developed his business in an iterative process - he experimented with different setups until he figured out what his target market (American coffee drinkers) saw as a good coffee house (which was dramatically different from his initial prototype: an Italian-style espresso bar).
(10b) Using your head
When you are dealing with a problem (drafting a strategy, or something else), there is a simple, but powerful method:
Make a list of the most influential actions and then start with the first item.
Making a list, and writing down thoughts, takes the pressure off your brain (the brain is there to have ideas, not to store them, cf. also GTD). Furthermore, making a list makes you reflect on your thoughts.
Most people don’t do that. People often jump at the first idea for a solution. However, it often makes sense to explore other ideas and then compare them (this is one of the reasons why the simple brainstorming method can be so powerful).
Conclusion
“Good Strategy, Bad Strategy” by Richard Rumelt offers many valuable insights, even beyond strategy creation.
If you want my key takeaway, see a strategy as what it is: not a set of goals, but a set of actions to deal with a challenge and when you draft a strategy, focus on the core elements of a good strategy: (i) diagnosis, (ii) policies & guidelines, and (iii) coherent actions.
These simple steps can make a big difference.
These were my key insights from Good Strategy, Bad Strategy. I’ve started using some of these insights in my daily work. If you’re curious, stick around - I’ll share my personal experiences in my next post!