Good Strategy Bad Strategy, R.Rumelt

I own this book and took these notes to further my own learning. Taking notes, publishing them and re-reading them allow me to flatten my forgetting curve. If you enjoy these notes, I highly encourage you to do the same, buy this book here and take your own notes.  

Part I: Good and Bad strategy

• Good strategy requires leaders who are willing to say “no” to a variety of activities in order to focus on the ones that matter
• A lot of persons forget that Apple's strategy in 97 was finally very business 101, Job cut 80% of inventory, reduced the number of the product offered to 1, cut out distributors and dealers and sold directly to consumers on their web store. “I am going to wait for the next big things,” said S jobs in 98 which is a wise approach considering the situation at that moment
• Walmart's strategy in 1984 managed to beat the old leader Kmart which benefited with all the necessary weapons to compete… but Walmart came up with a shift in perspective, the build a network of stores connected by logistics
• Bad strategy:
  • Fluff: unnecessary and inflated wording to create an illusion of high-level thinking
  • Failed to define the challenge
  • Mistakes Goals for strategy, desire vs plan for overcoming obstacles
  • Bad strategic objectives are impracticable or fail to address a critical issue
  • Budget planning is not strategy because it won't deliver a pathway to higher performance. To increase performance leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcome them
  • Dog's dinner objectives: a long list of things to do…. A good strategy works by focusing resources and energy on one or very few pivotal objectives that will lead to a cascade of favorable outcomes
  • Blue sky objectives: restate just the problem and does not give clear guidelines on how to get there… a good strategy builds the bridge bwn the challenge and the actions… “the challenge is bad performance” is always a very bad strategy beginning… the real challenge is the real reasons for underperformance
  • Bad strategy is long on goal and short on policies and action. The strategy is not about the outcome but output
  • The template style “fits all” strategy: (vision, mission, values, strategy) are essentially consulting verbiage
  • The strategy is the leader… A charismatic leader is not enough (M Weber 1864, sociology, segmented leaders in 2: formal leaders vs charismatic leaders (superhuman)). Eisenhower, Marshall, Truman were effective leaders but none possessed amazing charisma
• Strategic planning is a waste of time, the first step of making a real strategy is to get the AHA moment where we find a sustainable competitive advantage, that's to say a meaningful insight on “how to win”
• The Kernel of good strategy: 
  • 1. A diagnosis (explain/define the nature of the challenge),
  • 2. A guiding policy for dealing with the challenge (overall approach to overcome obstacles),
  • 3. A set of coherent actions that are designed to carry out the guiding policy
• In business: the challenge is often dealing with change or competition. First = define this challenge, second = find a guiding policy for dealing with the situation that creates some type of leverages or advantages. Third = design a configuration of actions and resource allocation that implement the chosen guiding policy  

Part II: Source of Power

 Sources of power used in good strategy:

• LEVERAGE: finding an imbalance in a situation, and exploiting it to produce a disproportionately large payoff. Strategic leverage occurs when a company anticipates market/competitors’ actions and identifies the pivot point that will give the biggest impact. Toyota anticipated hybrid technology for SUV, Management believed that once presented with the chance to license their technology, other automakers would not invest in research for this hybrid technology. 
• PROXIMATE OBJECTIVES: an objective that is close enough at hand to be feasible. This objective drives the energy and focus of the organization. For Example, President Kennedy calls for the US to place a man on the moon by the end of the 1960s (leading to the affirmation of the supremacy of the US and its model…). Bad example = “war on drugs”, not feasible because of law constraint, this is an unachievable goal. Engineers can't work without specifications, an example of Sillys’ good guess that the surface of the moon was like the mountains on earth. Good leaders transform complexity and ambiguity to simpler problems. OKR!
• CHAIN LINK SYSTEMS: A system has chain-link logic when its performance is limited by its weakest link. In the company, this means that each department is dependent on the other and if one underperforms, the performance of the entire system will decline. On the other hand, if each department excels in its domain having a chain-link system makes it very difficult for the competition. FOR Example IKEA, Their system is chain-linked together such that it’s hard for competitors to replicate. The only way to compete against IKEA would be to replicate the entire chain, being good in just one element won't be enough… on the other flip, IKEA could also be stuck in one the chain is stuck
• DESIGN: design type strategy is an adroit configuration of resources and actions that yields an advantage in a challenging situation. It’s the result of great anticipation and fitting various pieces together so they work as a coherent whole. The best example is Hannibal's design strategy against the Romans in the WAR of Cannae in 216 BC. Hannibal's army successfully surrounded the Romans army thanks to great anticipation and coordinated actions orchestrated in time and space. Good for Competitive landscape, but not good in front of uncertainty and agility
• FOCUS: attacking a segment of the market with a product or service that delivers more value to that segment than other players do for the entire market
• GROWTH: is not the result of acquiring other companies, it is the result of increased demand for your products and services. It is the reward for successful innovation, cleverness, efficiency, and creativity
• ADVANTAGE: W. Buffet invests in companies that have “a sustainable competitive advantage”. Competitive advantage = producing for lower costs or delivering more perceived value or both. You also need an “isolating mechanism” that prevents competitors from duplicating. Example: Apple with its brand name and network effect. Disney film, people go to the cinema to watch the next Disney, not the next Sony pictures studios…
• DYNAMICS: waves of change that roll through an industry (exogenous), Detect this by looking for Rising fixed costs, Deregulation, Attractor States (where an industry “should” go)
• INERTIA: the inertia of routine, the inertia of culture can be broken by simplifying (eliminate complex routines and process). The inertia of proxy can be broken when a company decides that adopting change is more important than hanging on old profit streams (Netflix vs blockbusters.)
• ENTROPY: GM’s car lines used to have distinct price points, models, and target buyers, but over time entropy caused each line to creep into each other and overlap, causing declining sales from consumer confusion The loss of coherence in General Motors’ product line dramatically increased the amount of internal competition among its brands. Business leaders tend to see competition as a cleansing wind, blowing away waste, and abuse. But the world is not that simple. 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.  

Part III: Thinking like a strategist

• A good strategy is a hypothesis of what will work
• This hypothesis should be built around induction, analogy, judgment, and insights
• In science, a hypothesis is a testable explanation for something that happens
• S. jobs’ operating principles: (1) imagine a product that is “insanely great,” (2) assemble a small team of the very best engineers and designers in the world, (3) make the product visually stunning and easy to use, pouring innovation into the user interface, (4) tell the world how cool and trendy